UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM20-F
[ ]
☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE
ACT OF 1934 |
OR
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 201827, 2021
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
[ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
EXCHANGE ACT OF 1934
Date of event requiring this shell company report _________________
For the transition period from _________________ to _________________
Commission file number:001-32635
BIRKS GROUP INC.
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
Canada
(Jurisdiction of incorporation or organization)
2020 Robert-Bourassa Blvd.
Montreal Québec
Canada
H3A 2A5
(Address of principal executive offices)
Pat Di Lillo,Katia Fontana, 514-397-2592 (telephone),514-397-2537 (facsimile)
2020 Robert-Bourassa Blvd.
Suite 200
Montreal Québec
Canada
H3A 2A5
(Name, Telephone,E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Class A Voting Shares, without nominal or par value | BGI | NYSE American LLC |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None.
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None.
The number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the Annual Report was:
10,610,973 | Class A Voting Shares, without nominal or par value | |
7,717,970 | Class B Multiple Voting Shares, without nominal or par value | |
0 | Series A Preferred Shares, without nominal or par value, issuable in series |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☐Yes ☒ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
☐Yes ☒ No
Note: Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
☒Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
☒ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.filer, or an emerging growth company. See definition of “accelerated filer and large“large accelerated filer”, “accelerated filer”, and “emerging growth company” in Rule12b-2 of the Exchange Act. (Check one):
Large accelerated | ☐ | Accelerated | ☐ | Non-accelerated | ☒ | |||||
Emerging Growth Company | ☐ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.☐
†
† | The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP ☒ | International Financial Reporting Standards as issued | Other ☐ | ||||||
by the International Accounting Standards Board | ☐ |
International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ Other ☐
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17☐17 ☐ Item 18☐ 18 ☐
If this is an Annual Report, indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).
☐ Yes ☒ No
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Item 3. | ||||||
Item 4. | ||||||
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Item 4A. | Unresolved Staff Comments | 27 | ||||
Item 5. | ||||||
Item 6. | ||||||
Item 7. | ||||||
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| 55 | |||||
Item 8. | Financial Information | 58 | ||||
Item 9. | The Offer and Listing | 59 | ||||
Item 10. | Additional Information | 59 | ||||
Item 11. | ||||||
Item 12. | ||||||
Item 13. | ||||||
Item 14. | Material Modifications to the Rights of Security Holders and Use of Proceeds | |||||
Item 15. | ||||||
Item 16A. | ||||||
Item 16B. | ||||||
Item 16C. | ||||||
Item 16D. | ||||||
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | |||||
Item 16F. | ||||||
Item 16G. | ||||||
Item 16H. | ||||||
Item 17. | ||||||
Item 18. | ||||||
Item 19. |
i
INTRODUCTION
References
Unless the context otherwise requires, the terms “Birks Group,” “the Company,” “we,” “us,” and “our” are used in this Annual Report to refer to Birks Group Inc., a Canadian corporation, and its subsidiaries on a consolidated basis. In addition, (i) the term “Mayors” refers to Mayor’s Jewelers, Inc., a Delaware corporation, and its wholly-owned subsidiary, Mayor’s Jewelers of Florida, Inc., a Florida corporation, until October 23, 2017, upon which date it was sold to a third party, and (ii) “the merger” refers to the merger of Mayors with a wholly-owned subsidiary of the Company, as approved by the stockholders on November 14, 2005. The term “Birks” refers to Henry Birks & Sons Inc., the legal name of Birks Group prior to the merger.
Presentation of Financial and Other Information
The consolidated financial statements of Birks Group contained in this Annual Report are reported in United States (“U.S.”) dollars and have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. Unless otherwise indicated, all monetary references herein are denominated in U.S. dollars; references to “dollars” or “$” are to U.S. dollars and references to “CAD$” or “Canadian dollars” are to Canadian dollars.
Throughout this Annual Report, we refer to our fiscal year ending March 31, 2018,27, 2021, as fiscal 2018,2021, and our fiscal years ended March 25, 201728, 2020, and March 26, 2016,30, 2019, as fiscal 20172020 and fiscal 2016,2019, respectively. Our fiscal year ends on the last Saturday in March of each year. The fiscal year ended March 31, 2018 consisted of 53 weeks. The fiscal years ended March 25, 2017,27, 2021 and March 26, 201628, 2020 consisted of 52 weeks, respectively.
Current developments
COVID-19
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease (COVID-19) a pandemic and a global emergency. In response to this pandemic, many government authorities took preventative and protective actions to contain the spread of the virus, including imposing restrictions on business operations and travel and advising individuals to limit or forego their time outside of their homes.
Operational Impacts
As a result of the measures adopted by the Canadian Federal and provincial governments to mitigate the spread of the virus, and in order to ensure the health and safety of its employees, customers and the community, the Company temporarily closed all of its retail locations in Canada effective on March 18, 2020. This adversely impacted the Company’s operations for the remaining thirteen days of fiscal 2020 and in fiscal 2021. In the first two months of fiscal 2021, the Company’s only sales were derived from its e-commerce business as well as its concierge telephone service, which, along with its distribution center, continued to operate with strict health and safety protocols in place, in accordance with local government guidelines. We have also continued to operate our wholesale business and our head office functions under a “work from home” model.
During the months of June 2020 and July 2020, the Company gradually re-opened its stores across Canada as the federal and provincial government authorities loosened the protective actions and restrictions imposed at the outset of the pandemic outbreak. By the end of July 2020, the Company had re-opened all of its retail stores, albeit at reduced operating hours and reduced capacity.
As a result of provincial restrictions to address the subsequent “waves” of the COVID-19 pandemic, the Company has since experienced intermittent government mandated closures of its retail stores as well as capacity restrictions. Six of our Ontario stores, including our Bloor street flagship store, were temporarily closed for a 15-week period between November 23, 2020 and March 9, 2021. Our remaining four thirteen-week periods.Ontario stores were temporarily closed for a 12-week period between November 23, 2020 and February 16, 2021. Our five Québec stores were temporarily closed for a six-week period between December 26, 2020 and February 8, 2021. Our Manitoba store was temporarily closed for a ten-week period between November 12, 2020 and January 23, 2021. During the third and fourth quarters of fiscal 2021, 16 of our 29 retail stores, representing 55% of our network, were temporarily closed for in-person shopping (but the majority remained open for concierge service and curbside pick-up) due to government orders for average durations of six to fifteen weeks, respectively. As of the date of this Form 20-F, nine of our ten retail stores in Ontario are closed for in-person shopping until at least July 6, 2021. We will continue to adhere to all future guidelines provided by local government and health organizations.
Operational Response and Financial & Liquidity Impacts
As a result of these developments, the Company established a cross-functional management team to evaluate and guide its business operations in the context of the COVID-19 pandemic, with a focus on the health and safety of the Company’s employees and clients, business continuity, and management of liquidity.
Due to the materially adverse impact that the COVID-19 pandemic has had on the global economy, consumer confidence and spending, as well as the retail operating environment, our fiscal 2021 financial results were materially impacted. The temporary retail store closures (for in-person shopping) imposed by local health authorities across various provinces in Canada at intermittent periods during fiscal 2021 (including Q1, Q3 & Q4) as well as capacity and social distancing restrictions when stores have been opened, have caused our fiscal 2021 sales to be below prior year sales.
The Company has taken various actions and strategies in an attempt to mitigate the financial impacts of COVID-19 in order to manage liquidity to finance its ongoing operations. We have substantially reduced selling, general and administrative expenses (including employee compensation costs at both the retail and head office levels, marketing costs and other operating costs) and discretionary spending across all areas of the business.
This includes the following initiatives:
Substantially reduced compensation costs by temporarily laying-off the majority of our employees without pay during the period of store closures, implementing temporary base salary reductions of 20% and 10% for our executive officers at intermittent periods during the fiscal year, reducing the workweek by 20% and 10% for the remaining active employees at intermittent periods during the fiscal year, temporarily reducing the Board of Directors compensation by 20% and 10% at intermittent periods during the fiscal year, as well as implementing hiring and salary freezes during fiscal 2021;
Worked closely with all of our partners and suppliers and negotiated extended credit terms with certain vendors;
Worked closely with our landlords to negotiate various forms of rent relief (including abatements and deferrals) during store lockdown periods and/or subsequent periods;
Postponed capital expenditures through the first three quarters of fiscal 2021 as needed;
Adjusted and reduced forward inventory purchases where applicable;
Qualified and applied for applicable government relief programs including the Canada Emergency Wage Subsidy (“CEWS”) program and the Canada Emergency Rent Subsidy (“CERS”) program.
On July 8, 2020, the Company secured a new six-year term loan with Investissement Québec, the sovereign fund of the province of Québec, in the amount of $10.0 million, as amended. The secured term loan was used to fund the working capital needs of the Company. The loan bears interest at a rate of 3.14% per annum and is repayable in 60 equal payments beginning in July 2021. The term loan with Investissement Québec requires the Company on an annual basis to have a working capital ratio (defined as current assets divided by current liabilities excluding the current portion of operating lease liabilities) of at least 1.01. As at March 27, 2021, the Company had a working capital ratio of 1.03. On June 2, 2021, the Company obtained a waiver from Investissement Québec with respect to the requirement to meet the working capital ratio at March 26, 2022.
Acceptance of Compliance Plan by NYSE American
On August 13, 2020, the Company was notified by NYSE American LLC (“NYSE American”) that it was not in compliance with the continued listing standards set forth in Section 1003(a)(ii) of the NYSE American Company Guide (the “Company Guide”). That section applies if a listed company has stockholders’ equity of less than U.S. $4.0 million and has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years. Furthermore, on December 9, 2020, the Company was notified by NYSE American that it was not in compliance with the continued listing standards set forth in Section 1003(a)(i) of the Company Guide. That section applies if a listed company has stockholders’ equity of less than U.S. $2.0 million and has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years. Lastly, upon filing of its financial statements for the fiscal period ended March 27, 2021 on Form 20-F, the Company expects to be non-compliant with the continued listing standards as set forth in Section 1003(a)(iii) of the Company Guide which applies if a listed company has stockholders’ equity of less than U.S. $6.0 million and has reported losses from continuing operations and/or net losses in its five most recent fiscal years. The Company is reporting
stockholders’ deficiency of U.S. $1.2 million (CAD deficiency $1.5 million) as of its fiscal year ended March 27, 2021, and has reported losses from continuing operations in each of its last five most recent fiscal years including the fiscal year ended March 27, 2021, while nevertheless reporting net income in two of its last five fiscal years.
In accordance with the procedures and requirements of Section 1009 of the Company Guide, the Company submitted its plan of compliance on September 6, 2020 addressing how the Company intends to regain compliance with Section 1003(a)(ii) of the Company Guide. On October 22, 2020, NYSE American notified the Company that it accepted the compliance plan and granted the Company an extension for its continued listing until February 6, 2022 (the “Plan Period”). Birks Group can regain compliance under Sections 1003(a)(i) and 1003(a)(iii) of the Company Guide under the compliance plan approved by NYSE American on October 22, 2020, which granted the Company an extension for its continued listing until February 6, 2022. The Company is not required to submit an additional plan to NYSE American with respect to Section 1003(a)(i).
The Company is subject to periodic review by NYSE American during the Plan Period. If the Company does not regain compliance by the end of the Plan Period, or if the Company does not make progress consistent with the plan during the Plan Period, NYSE American may initiate delisting procedures as appropriate. Receipt of the non-compliance and acceptance notices does not affect the Company’s business, operations, financial or liquidity condition, or reporting requirements with the Securities and Exchange Commission. During this time, the Company’s Class A voting shares will continue to be listed and trade on the symbol “BGI.”
Significant Transaction in fiscal 2018
On August 11, 2017, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Aurum Holdings Ltd., a company incorporated under the laws of England and Wales, which assigned its rights and obligations under the Stock Purchase Agreement to Aurum Group USA, Inc., a Delaware corporation (now known as Watches of Switzerland) (“Aurum”) to sell its wholly-owned subsidiary, Mayors. Pursuant to the termsMayors, which operated in Florida and conditions of the Stock Purchase Agreement, at the closing, Aurum acquired 100% of the outstanding equity interests of Mayors.Georgia and was engaged primarily in luxury timepieces and jewelry retail activities. The sale transaction closedwas completed on October 23, 2017 for total cash consideration of $135.0 million (USD $106.8 million, net of closing adjustmentsmillion) (the “Aurum Transaction”). The Aurum Transaction was entered into on a debt-free basis except for certain specified liabilities.
As part of the Aurum Transaction, Birks entered into a 5 year5-year distribution agreement with Aurum (the “Distribution Agreement”) to sell Bijoux Birks fine jewelry collections in the U.K. at Mappin & Webb and Goldsmiths stores and on their respectivee-commerce platforms. Furthermore, pursuant to the Distribution Agreement, the Bijoux Birks collections will continue to be sold in the United States through Mayors stores in Florida and Georgia. The Distribution Agreement is an important achievement in the Company’s strategy to develop the Birks brand into a global luxury brand. The Aurum Transaction constitutes a significant step in the Company’s efforts to strengthen its balance sheet and to execute its strategic vision of investing in the Birks brand together with the retailing of internationally-renowned jewelry and timepiece brands in Canada.
On October 23, 2017, as a condition to the closing of the Aurum Transaction, the Company entered into (i) an Inventory Purchase Agreement whereby Birks purchased approximately $1.8 million in inventory from Mayors; (ii) a Transition Services Agreement whereby Birks agreed to provide certain transition services to Mayors and its wholly-owned subsidiaries for a period of six months following the closing of the Aurum Transaction, subject to certain renewal rights, (iii) a Services Agreement whereby Mayors agreed to provide certain services to Birks for a period of one year following the closing of the Aurum Transaction, subject to certain renewal rights and (iv) an Authorized Dealer Agreement with Mayors Jewelers of Florida, Inc. (Mayors together Mayors Jewelers of Florida, Inc., the “Authorized Dealer”) whereby the Authorized Dealer will promote the sale of Birks-branded products and trademarks in the United States.
Proceeds from the Aurum Transaction were used to pay down outstanding debt under the Company’s previous senior secured credit facilities that included term debt and working capital debt associated with Mayors. The Company doesdid not intend on payingpay dividends as a result of the Aurum Transaction, but rather, the remaining
transaction proceeds will bewere used by Birks to continue its strategic growth initiatives, specifically to invest in its Canadian flagship stores and new store concepts, as well as into support its high-growth Bijoux Birks brand wholesaling activities ande-commerce, as part of the Company’s omni-channel strategy. The Company expects that the next two years will be a capital intensive spending period during which the Company intends to fully renovate its three flagship stores (Montreal, Toronto, and Vancouver) which may result in temporarily lower sales and contribution margin at these specified locations in order to generate future long-term returns for the Company.
As a result of the Aurum Transaction, the Company has presented Mayors’ results as a discontinued operation in the consolidated statements of operations and cash flows for all periods presented. Furthermore, the assets and liabilities of Mayors have been segregated and reported as held for sale in all periods presented. See “Significant Transaction” in Item 5 below for a reconciliation of the Company’s results from continuing operations and from discontinuing operations for the fiscal years 2018, 2017,2021, 2020, and 2016,2019, respectively.
References to the Company exclude the cash flows, operations, assets and liabilities of the discontinued operations unless otherwise noted.
Forward-Looking Information
This Annual Report and other written reports and releases and oral statements made from time to time by the Company contain forward-looking statements which can be identified by their use of words like “plans,” “expects,” “believes,” “will,” “anticipates,” “intends,” “projects,” “estimates,” “could,” “would,” “may,” “planned,” “goal,” and other words of similar meaning. All statements that address expectations, possibilities or projections about the future, including, without limitation, statements about our strategies for growth, expansion plans, sources or adequacy of capital, expenditures and financial results are forward-looking statements. These risks and uncertainties include, but are not limited to the following: (i) the magnitude and length of economic disruption as a result of the COVID-19 outbreak, including its impact on macroeconomic conditions, generally, as well as its impact on the results of operations and financial condition of the Company and the trading price of its shares; (ii) a decline in consumer spending or deterioration in consumer financial position; (iii) economic, political and market conditions, including the economies of Canada and the U.S., which
could adversely affect the Company’s business, operating results or financial condition, including its revenue and profitability, through the impact of changes in the real estate markets, changes in the equity markets and decreases in consumer confidence and the related changes in consumer spending patterns, the impact on store traffic, tourism and sales; (iv) the impact of fluctuations in foreign exchange rates, increases in commodity prices and borrowing costs and their related impact on the Company’s costs and expenses; (v) the Company’s ability to maintain and obtain sufficient sources of liquidity to fund its operations, to achieve planned sales, gross margin and net income, to keep costs low, to implement its business strategy, maintain relationships with its primary vendors, to mitigate fluctuations in the availability and prices of the Company’s merchandise, to compete with other jewelers, to succeed in its marketing initiatives, and to have a successful customer service program; and (vi) the Company’s ability to execute its strategic vision; (vii) the Company’s completion of the filing requirements for the CERS; and (viii) the Company’s ability to invest in and finance capital expenditures.
One must carefully consider such statements and understand that many factors could cause actual results to differ from the forward-looking statements, such as inaccurate assumptions and other risks and uncertainties, some known and some unknown. No forward-looking statement is guaranteed and actual results may vary materially. Such statements are made as of the date provided, and we assume no obligation to update any forward-looking statements to reflect future developments or circumstances.
One should carefully evaluate such statements by referring to the factors described in our filings with the Securities and Exchange Commission (“SEC”), especially on this Form20-F and our Forms6-K. Particular review is to be made of Items 3, 4 and 5 of this Form20-F where we discuss in more detail various important risks and uncertainties that could cause actual results to differ from expected or historical results. All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by these cautionary statements. Since it is not possible to predict or identify all such factors, the identified items are not a complete statement of all risks or uncertainties.
Item 1. |
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Not applicable.
Item 2. |
Not applicable.
Item 3. | Key Information |
Selected Financial Data
The following financialincome statement data and balance sheet data as of March 31, 201827, 2021 and March 25, 201728, 2020 and for the years ended March 31, 2018,27, 2021, March 25, 2017,28, 2020, and March 26, 201630, 2019 have been derived from our audited consolidated financial statements, which are included elsewhere in this Annual Report. The following financial data as of March 26, 2016,30, 2019, March 28, 2015,31, 2018, and March 29, 201425, 2017 and for the years ended March 28, 2015,31, 2018 and March 29, 201425, 2017 have been derived starting with our audited consolidated financial statements not included in this Annual Report, recast to CAD (see * footnote below) and then adjusted to reflect the effects of the discontinued operations (see footnote *4 below), which adjustments are unaudited. All fiscal years, except for fiscal 2018, in the table below consisted of 52 weeks. Fiscal 2018 consisted of 53 weeks. The historical results included below and elsewhere in this Annual Report are not necessarily indicative of our future performance.
The data presented below is only a summary and should be read in conjunction with our audited consolidated financial statements, including the notes thereto, included elsewhere in this Annual Report. You should also read the following summary data in conjunction with Item 5, “Operating and Financial Review and Prospects” included elsewhere in this Annual Report.
Income Statement Data – from continuing operations:
Income Statement Data – from continuing operations: | ||||||||||||||||||||
Fiscal Year Ended | ||||||||||||||||||||
March 31, 2018 | March 25, 2017* | March 25, 2016* | March 28, 2015* | March 29, 2014* | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Net sales | $ | 114,378 | $ | 116,436 | $ | 128,651 | $ | 143,384 | $ | 146,278 | ||||||||||
Cost of sales | 70,824 | 69,654 | 75,682 | 84,232 | 82,527 | |||||||||||||||
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Gross profit | 43,554 | 46,782 | 52,969 | 59,152 | 63,751 | |||||||||||||||
Selling, general and administrative expenses | 51,823 | 47,183 | 48,333 | 52,897 | 60,991 | |||||||||||||||
Restructuring charges(1) | 688 | 682 | 549 | 781 | - | |||||||||||||||
Depreciation and amortization | 2,549 | 2,618 | 2,791 | 3,048 | 2,942 | |||||||||||||||
Gain on sale of assets(2) | - | - | (3,229 | ) | - | - | ||||||||||||||
Impairment of long-lived assets(3) | 2,156 | - | - | 238 | - | |||||||||||||||
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Total operating expenses | 57,216 | 50,483 | 48,444 | 56,964 | 63,933 | |||||||||||||||
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Operating (loss) income | (13,662 | ) | (3,701 | ) | 4,525 | 2,188 | (182 | ) | ||||||||||||
Interest and other financial costs | 3,116 | 3,355 | 4,300 | 2,676 | 4,949 | |||||||||||||||
Debt extinguishment charges(4) | - | - | - | 2,643 | - | |||||||||||||||
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Income (loss) from continuing operations before income taxes | (16,778 | ) | (7,056 | ) | 225 | (3,131 | ) | (5,131 | ) | |||||||||||
Income tax (recovery) expense | - | - | - | - | 18 | |||||||||||||||
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Net (loss) income from continuing operations | (16,778 | ) | (7,056 | ) | 225 | (3,131 | ) | (5,149 | ) | |||||||||||
Discontinued operations: | ||||||||||||||||||||
(Loss) income from discontinued operations, net of tax | (1,405 | ) | 11,984 | 5,213 | (5,501 | ) | (652 | ) | ||||||||||||
Gain on disposal of discontinued operations, net of tax | 29,882 | - | - | - | - | |||||||||||||||
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Net income from discontinued operations | 28,477 | 11,984 | 5,213 | (5,501 | ) | (652 | ) |
Fiscal Year Ended | ||||||||||||||||||||
March 27, 2021 | March 28, 2020 | March 30, 2019 | March 31, 2018* | March 25, 2017* | ||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||
Net sales | $ | 143,068 | $ | 169,420 | $ | 151,049 | $ | 146,608 | $ | 152,992 | ||||||||||
Cost of sales | 86,718 | 104,943 | 92,472 | 90,915 | 91,460 | |||||||||||||||
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Gross profit | 56,350 | 64,477 | 58,577 | 55,693 | 61,532 | |||||||||||||||
Selling, general and administrative expenses | 53,713 | 65,867 | 67,106 | 66,754 | 61,599 | |||||||||||||||
Restructuring charges (1) | — | — | 1,182 | 894 | 897 | |||||||||||||||
Depreciation and amortization | 5,458 | 4,845 | 3,859 | 3,264 | 3,428 | |||||||||||||||
Impairment of long-lived assets (2) | — | 309 | 46 | 2,788 | — | |||||||||||||||
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Total operating expenses | 59,171 | 71,021 | 72,193 | 73,700 | 65,924 | |||||||||||||||
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Operating (loss) income | (2,821 | ) | (6,544 | ) | (13,616 | ) | (18,007 | ) | (4,392 | ) | ||||||||||
Interest and other financial costs | 3,017 | 5,683 | 4,689 | 3,988 | 4,467 | |||||||||||||||
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(Loss) income from continuing operations before income taxes | (5,838 | ) | (12,227 | ) | (18,305 | ) | (21,995 | ) | (8,859 | ) | ||||||||||
Income tax (recovery) expense | — | — | — | — | — | |||||||||||||||
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Net (loss) income from continuing operations | (5,838 | ) | (12,227 | ) | (18,305 | ) | (21,995 | ) | (8,859 | ) | ||||||||||
Discontinued operations: | ||||||||||||||||||||
(Loss) income from discontinued operations, net of tax | — | (552 | ) | (381 | ) | (1,592 | ) | 15,934 | ||||||||||||
Gain on disposal of discontinued operations, net of tax | — | — | — | 37,682 | — | |||||||||||||||
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Net income (loss) attributable to common shareholders Net income (loss) per common share, basic Net income (loss) per common share, diluted Net income (loss) from continuing operations per common share – basic Net income (loss) from continuing operations per common share – diluted Weighted average common shares outstanding Weighted average common shares outstanding – diluted Dividends per share $ 11,699 $ 4,928 $ 5,438 $ (8,632 ) $ (5,801 ) $ 0.65 $ 0.27 $ 0.30 $ (0.48 ) $ (0.35 ) $ 0.64 $ 0.27 $ 0.30 $ (0.48 ) $ (0.35 ) $ (0.93 ) $ (0.39 ) $ 0.01 $ (0.17 ) $ (0.31 ) $ (0.91 ) $ (0.38 ) $ 0.01 $ (0.17 ) $ (0.31 ) 17,961 17,961 17,961 17,937 16,617 18,393 18,418 17,961 17,937 16,617 - - - - -
Net (loss) income from discontinued operations | — | (552 | ) | (381 | ) | 36,090 | 15,934 | |||||||||||||
Net (loss) income attributable to common shareholders | $ | (5,838 | ) | $ | (12,779 | ) | $ | (18,686 | ) | $ | 14,095 | $ | 7,075 | |||||||
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Net (loss) income per common share, basic | $ | (0.32 | ) | $ | (0.71 | ) | $ | (1.04 | ) | $ | 0.78 | $ | 0.39 | |||||||
Net (loss) income per common share, diluted | $ | (0.32 | ) | $ | (0.71 | ) | $ | (1.04 | ) | $ | 0.77 | $ | 0.38 | |||||||
Net (loss) income from continuing operations per common share – basic | $ | (0.32 | ) | $ | (0.68 | ) | $ | (1.02 | ) | $ | (1.22 | ) | $ | (0.49 | ) | |||||
Net (loss) income from continuing operations per common share – diluted | $ | (0.32 | ) | $ | (0.68 | ) | $ | (1.02 | ) | $ | (1.20 | ) | $ | (0.48 | ) | |||||
Weighted average common shares outstanding | 18,005 | 17,968 | 17,961 | 17,961 | 17,961 | |||||||||||||||
Weighted average common shares outstanding – diluted | 18,005 | 17,968 | 17,961 | 18,393 | 18,418 | |||||||||||||||
Dividends per share | — | — | — | — | — | |||||||||||||||
Non-GAAP Measures**: | ||||||||||||||||||||
Fiscal Year Ended | ||||||||||||||||||||
March 27, 2021 | March 28, 2020 | March 30, 2019 | March 31, 2018* | March 25, 2017* | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
EBITDA | $ | 2,637 | $ | (1,699 | ) | $ | (9,757 | ) | $ | (14,473 | ) | $ | (964 | ) | ||||||
Adjusted EBITDA | 2,637 | (1,390 | ) | (8,530 | ) | (11,061 | ) | (67 | ) |
Balance Sheet Data:
March 31, 2018 | March 25, 2017* | March 25, 2016* | March 28, 2015* | March 29, 2014* | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Working capital | $ | 17,698 | $ | 1,144 | $ | 7,466 | $ | 10,917 | $ | 17,410 | ||||||||||
Total assets | $ | 93,287 | $ | 86,116 | $ | 90,016 | $ | 93,018 | $ | 100,454 | ||||||||||
Bank indebtedness | $ | 28,640 | $ | 44,840 | $ | 35,149 | $ | 36,156 | $ | 37,355 | ||||||||||
Long-term debt (including current portion) | $ | 6,368 | $ | 6,450 | $ | 16,979 | $ | 21,142 | $ | 23,785 | ||||||||||
Stockholders’ equity | $ | 25,187 | $ | 12,796 | $ | 7,704 | $ | 2,823 | $ | 13,622 | ||||||||||
Common Stock: | ||||||||||||||||||||
Value | $ | 69,601 | $ | 69,601 | $ | 69,601 | $ | 69,601 | $ | 69,475 | ||||||||||
Shares | 17,961 | 17,961 | 17,961 | 17,961 | 17,850 |
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March 27, 2021 | March 28, 2020 | March 30, 2019 | March 31, 2018* | March 25, 2017*(3) | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Working capital | $ | (2,882 | ) | $ | (6,275 | ) | $ | 7,464 | $ | 22,449 | $ | 1,530 | ||||||||
Total assets | $ | 201,680 | $ | 210,652 | $ | 133,795 | $ | 120,275 | $ | 115,163 | ||||||||||
Bank indebtedness | $ | 53,387 | $ | 58,035 | $ | 47,021 | $ | 36,925 | $ | 59,965 | ||||||||||
Long-term debt (including current portion) | $ | 26,022 | $ | 16,281 | $ | 17,104 | $ | 8,210 | $ | 8,626 | ||||||||||
Operating lease liability (including current portion) (4) | $ | 73,011 | $ | 78,458 | $ | — | $ | — | $ | — | ||||||||||
Stockholders’ equity (deficiency) | $ | (1,422 | ) | $ | 3,410 | $ | 13,783 | $ | 32,477 | $ | 17,112 | |||||||||
Common Stock: | ||||||||||||||||||||
Value | $ | 95,116 | $ | 93,368 | $ | 93,348 | $ | 93,348 | $ | 93,348 | ||||||||||
Shares | 18,329 | 17,971 | 17,961 | 17,961 | 17,961 |
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** | As described in the section Non-GAAP Measures |
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(3) | Retrospectively revised. For working capital, total assets, bank indebtedness and long-term debt for the |
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Dividends and Dividend Policy
We have not paid dividends since 1998 and do not currently intend to pay dividends on our Class A voting shares or Class B multiple voting shares in the foreseeable future. Our ability to pay dividends on our Class A voting shares and Class B multiple voting shares are restricted by our credit agreements. See Item 5, “Operating and Financial Review and Prospects — Liquidity and Capital Resources.” If dividends were declared by our Board of Directors, shareholders would receive a dividend equal to the per share dividend we would pay to holders of our Class A voting shares or holders of Class B multiple voting shares. Dividends we would pay to U.S. holders would generally be subject to withholding tax. See Item 10, “Additional Information —Taxation.”
RISK FACTORS
Risks Related to the CompanyCOVID-19 pandemic
Our business, financial condition, results of operations and cash flows have been and will continue to be adversely impacted by the COVID-19 pandemic.
A public health crisis or disease outbreak, epidemic or pandemic, or the threat or fear of such events, could adversely impact our business. In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic and a global emergency. In response to this pandemic, many government authorities have taken preventative and protective actions to contain the spread of the virus. COVID-19 has significantly impacted our retail stores, sales, and foot traffic, based on the perceived public health risk and government imposed quarantines and restrictions of public gatherings and commercial activity to contain the spread of the virus. As a result of the measures adopted by the Canadian federal and provincial governments to mitigate the spread of the virus, and in order to ensure the health and safety of our employees, customers and the community, we temporarily closed all of our retail locations in Canada in Q1 of fiscal 2021 and certain of our locations in intermittent periods during Q3 & Q4 of fiscal 2021. Refer to section “Current Developments”, sub-section “COVID-19” for further details on temporary retail store closures during fiscal 2021. This has adversely impacted our operations and financial performance in fiscal 2021. There is no guarantee that our retail and wholesale businesses will not be further impacted if the economy deteriorates due to the ongoing COVID-19 pandemic, or if additional governmental authorities order the shutdown of additional non-essential businesses. While our e-commerce business has not been negatively impacted, additional government mandates ordering the shutdown of business and manufacturing and fulfillment facilities could negatively impact our ability to take or fulfill customer orders placed online.
Our operations have been experiencing and are expected to continue to experience disruptions from the global outbreak of COVID-19. To date, such disruptions have included the temporary closure of all of our retail store operations in Canada effective on March 18, 2020 and during Q1 of fiscal 2021 and the temporary closure of certain of our locations at intermittent periods during Q3 & Q4 of fiscal 2021. As a result of these store closures, we have experienced significant declines in sales, including a year-over-year decline of approximately 16% for fiscal 2021 as compared to fiscal 2020. As of the date of this Form 20-F, nine of our ten retail stores in Ontario are closed for in-person shopping until at least July 6, 2021.
We expect that the COVID-19 pandemic will have risks to our business beyond fiscal 2021. Our business is particularly sensitive to reductions in discretionary spending by consumers. To date, this outbreak has caused, and is continuing to cause, significant disruption in the financial markets both globally and in Canada, which could lead to a decline in discretionary spending by consumers, and which could in turn impact, possibly materially, our business, sales, financial condition and results of operations. Consumer demand may be impacted amidst the uncertainty in the global economy caused by the pandemic which could negatively impact our retail business as well as the businesses of our retail partners. Our retail business is sensitive to tourism. Regions that previously had higher densities of tourism and/or commercial urban traffic could experience a slower recovery which would adversely impact our future sales. Furthermore, we are exposed to additional COVID-19 related risks in relation to our retail store network such as social distancing requirements implemented by local governments as well as possible mandatory or elective temporary store shutdowns in the case of potential further waves of COVID-19. Such impacts could result in lower or no foot traffic throughout our retail store network which would adversely impact our sales, cash flows from operations and our liquidity position. The effects could also impact our ability to continue to respect payment terms with our suppliers and could cause our accounts payable balances to age significantly. The effects of COVID-19 could also impact our ability
to adhere to the minimum excess availability requirements (described below) under both our senior secured credit facility (“Credit Facility”) and senior secured term loan (“Term Loan”). Failure to adhere to said requirements would be considered an event of default under the Credit Facility and Term Loan agreements, that provides the lenders the right to require the outstanding balances borrowed under our Credit Facility and Term Loan to become due immediately, which would result in cross defaults on our other borrowings. Furthermore, potential cases of COVID-19 infection that could arise at our corporate head office, distribution centers, or retail stores may disrupt our operations, which could lead to negative impacts on our revenues and cash flows from operations. Our operations have been impacted and could continue to be impacted by disruptions in our global supply chain network as result of COVID-19, including shortages of certain products due to disruptions in manufacturing by our suppliers, as well as costs of productions and distribution. We may experience increased operational challenges due to the implementation of work from home policies for both office employees and store employees whose stores are temporarily closed. Remote working arrangements may increase risks associated with our information systems such as the risk of cybersecurity incidents or system failures, which could have an adverse effect on our business. We cannot predict the degree to, or the time period over which our sales and operations will be affected by this outbreak, and the effects could be material. The longer the effects of COVID-19 last, the longer discretionary spending by consumers may be impacted, and the more extensive the effects could be on our business, sales, financial condition, liquidity, results of operations and our stock price. If there are further waves of the outbreak, stores may need to be closed again, further impacting our business, sales, financial condition, liquidity, results of operations and our stock price. The full extent of the impact of COVID-19 on our operations, financial performance, and liquidity, depends in part, on factors affecting consumer spendingfuture developments that are outuncertain and unpredictable.
Financial and Liquidity Risks
The level of our control.indebtedness could adversely affect our operations, liquidity and financial condition.
Our business dependsdebt levels fluctuate from time to time based on consumer demand for our products and, consequently, is sensitive to a numberseasonal working capital needs. In fiscal 2021, the Company incurred debt primarily consisting of factors that are beyond our control that influence consumer spending, including general economic conditions, consumer confidence in future economic conditions and political conditions, tourism, recession and fears of recession, consumer debt, disposable consumer income, conditionsthe Investissement Québec term loan in the housing market, consumer perceptionsamount of personal well-being$10.0 million, in order to fund the working capital needs of the Company, including those arising from the impact of the COVID-19 pandemic. In fiscal 2020, the Company incurred debt primarily consisting of bank indebtedness in order to manage its working capital needs. The following table sets forth our total indebtedness (including bank indebtedness and security, fuel prices, inclement weather,current and long-term portion of debt), total stockholders’ equity (deficiency), total capitalization and ratio of total indebtedness to total capitalization as of:
March 27, 2021 | March 28, 2020 | |||||||
Total indebtedness (consisting of bank indebtedness and long-term debt, including current portion) | $ | 79,409,000 | $ | 74,316,000 | �� | |||
Total stockholders’ equity (deficiency) | (1,422,000 | ) | 3,410,000 | |||||
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Total capitalization | $ | 77,987,000 | $ | 77,726,000 | ||||
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Ratio of total indebtedness to total capitalization | 101.8 | % | 95.6 | % | ||||
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This level of leverage could adversely affect our results of operations, liquidity and financial condition. Some examples of how high levels of indebtedness could affect our results of operations, liquidity and financial condition may include the following:
make it difficult for us to satisfy our obligations with respect to our indebtedness;
increase our vulnerability to adverse economic and industry conditions;
increase our vulnerability to fluctuations in interest rates, foreign exchange rates, sales tax rate increases, inflation, and war and fears of war. In particular, we have seen that the unpredictable economic conditions in the past years have contributedrates;
require us to declining revenues for our business. Jewelry purchases are discretionary for consumers and may be particularly and disproportionately affected by adverse trends in the general economy and the equity markets. Adverse changes in factors affecting discretionary consumer spending could reduce consumer demand for our products, resulting indedicate a reduction in our sales and harming our business and operating results. A substantial portion of cash from operations to the payment of debt service, thereby reducing the availability of cash to fund working capital, capital expenditures and other general corporate purposes;
limit our customers use credit, either fromability to obtain additional financing for working capital, capital expenditures, general corporate purposes or acquisitions;
place us at a disadvantage compared to our private labelcompetitors that have a lower degree of leverage; and proprietary credit cards or another consumer credit source, to purchase jewelry. When there is a downturn in
negatively affect the general economy, fewer people may use or be approved for credit, which could result in a reduction in net sales and/or an increase in bad debts, which in turn, could lead to an unfavorable impact onprice of our overall profitability. stock.
Consequently, our belief that we currently have sufficient liquidity to fund our operations is based on certain assumptions about the future state of the economy, the future availability of borrowings to fund our operations and our future operating performance. To the extent that the economy and other conditions affecting our business are significantly worse than we anticipate, we may not achieve our projected level of financial performance and we may determine that we do not have sufficient capital to fund our operations.
Our businessSignificant restrictions on our borrowing capacity could be adversely affected ifresult in our relationships with any primary vendors are terminatedinability to fund our cash flow requirements or ifmaintain minimum excess availability requirements under the deliveryterms of their products is delayed or interrupted.our secured asset-based credit facility needed to support our day-to-day operations and our ability to continue as a going concern.
We compete with other jewelry retailers for accessOur ability to vendors that will provide us with the qualityfund our operations and quantity of merchandise necessary to operatemeet our business, and our merchandising strategy dependscash flow requirements is dependent upon our ability to maintain good relationspositive excess availability under our $85.0 million senior secured revolving credit facility (the “Credit Facility”). Under the Credit Facility, our sole financial covenant is to maintain minimum excess availability of not less than $8.5 million at all times, except that we shall not be in breach of this covenant if excess availability falls below $8.5 million for not more than two consecutive business days once during any fiscal month. Our excess availability was above $8.5 million throughout fiscal 2021.
Both our Credit Facility and Term Loan (defined below) are subject to cross default provisions with significant vendors. Certain brand name timepieceall other loans pursuant to which if we are in default of any other loan, we will immediately be in default of both the Credit Facility and jewelry manufacturersthe Term Loan. In the event that excess availability falls below $8.5 million for more than two consecutive business days once during any fiscal month, this would be considered an event of default under the Credit Facility and Term Loan agreements, that provides the lenders the right to require the outstanding balances borrowed under our Credit Facility and Term Loan to become due immediately, which would result in cross defaults on our other borrowings. We expect to have distribution agreementsexcess availability of at least $8.5 million for at least the next twelve months.
On June 29, 2018, we secured a $12.5 million senior secured term loan (the “Term Loan”) with Crystal Financial LLC (“Crystal”) now known as SLR Credit Solutions (“SLR”). The Term Loan, which matures in October 2022, is subordinated in lien priority to the Credit Facility and bears interest at a rate of Canadian Dollar Offered Rate (“CDOR”) plus 8.25%. Under the Term Loan, we are required to adhere to a similar financial covenant as under the Credit Facility (maintain minimum excess availability of not less than $8.5 million at all times, except that we shall not be in breach of this covenant if excess availability falls below $8.5 million for not more than two consecutive business days once during any fiscal month). In addition, the Term Loan includes seasonal availability blocks imposed from December 20th to January 20th of each year of $9.5 million and from January 21st to February 20th of each year of $4.5 million. The Term Loan is required to be repaid upon maturity.
Our borrowing capacity under both the Credit Facility and Term Loan is based upon the value of our Company that, among other things, provide for specific sales locations, yearly renewal termsinventory and early termination provisions at the manufacturer’s discretion. In fiscal 2018, merchandise suppliedaccounts receivable, which is periodically assessed by our largest luxury jewelry supplierlenders and sold throughbased upon these reviews, our stores accountedborrowing capacity could be significantly increased or decreased.
Our lenders under our Credit Facility and our Term Loan may impose, at any time, discretionary reserves, which would lower the level of borrowing availability under our credit facilities (customary for approximately 15%asset-based loans), at their reasonable discretion, to: i) ensure that we maintain adequate liquidity for the operation of our business, ii) cover any deterioration in the value of the collateral, and iii) reflect impediments to the lenders to realize upon the collateral. There is no limit to the amount of discretionary reserves that our lenders may impose at their reasonable discretion.
No discretionary reserves were imposed during fiscal 2021, fiscal 2020, and fiscal 2019, by our current or former lenders.
For fiscal 2021, the Company reported net losses from continuing operations and a total net salesloss of $5.8 million. The Company reported net losses from continuing operations of $12.2 million and $18.3 million (total net loss of $12.8 million and $18.7 million) for fiscal 2020 and fiscal 2019, respectively. The Company used cash in operating activities from continuing operations of $1.7 million, $3.2 million, and $4.3 million for fiscal 2021, 2020, and 2019, respectively. The Company also had a negative working capital as at March 27, 2021 and March 28, 2020, primarily as a result of COVID-19 impacts on the business.
Maintenance of sufficient availability of funding through an adequate amount of committed financing is necessary for the Company to fund its day-to-dayoperations. Our relationshipsIf the Company does not generate profitable operations and positive cash flows from operations in future periods, the Company may be unable to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company’s ability to make scheduled payments of principal, or to pay the interest or additional interest, if any, or to fund planned capital expenditures and store operations will depend on its ability to maintain adequate levels of available borrowing and its future performance, may be subject to general economic, financial, competitive, legislative and regulatory factors, as well as other events that are beyond the Company’s control.
The Company continues to operate through its Credit Facility. COVID-19 has resulted in significant disruption to global financial markets, which could have a negative impact on the Company’s ability to access capital in the future. Given the uncertainty in the circumstances, the Company is pursuing other actions to enhance its liquidity position, which could include entering into new credit facilities, raising additional funds through public or private equity or debt financing, including funding from governmental sources, to the extent available. If new credit facilities are not available to the Company, there may be a material adverse impact on its financial condition and ability to manage its working capital.
On July 8, 2020, the Company secured a new six-year term loan with primary suppliers are generallyInvestissement Québec in the amount of $10.0 million, as amended. The secured term loan was used to fund the working capital needs of the Company. The loan bears interest at a rate of 3.14% per annum and is repayable in 60 equal payments beginning in July 2021. The term loan with Investissement Québec requires the Company on an annual basis to have a working capital ratio (defined as current assets divided by current liabilities excluding the current portion of operating lease liabilities) of at least 1.01. As at March 27, 2021, the Company had a working capital ratio of 1.03. On June 2, 2021, the Company obtained a waiver from Investissement Québec with respect to the requirement to meet the working capital ratio at March 26, 2022.
The going concern basis of presentation assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business.
Additional financing or capital that may be required may not pursuant to long-term agreements. We obtain materials and manufactured items from third-party suppliers. Any delay or interruption in our suppliers’ abilities to provide us with necessary materials and components may affect our manufacturing capabilitiesbe available on commercially reasonable terms, or may require usnot be available at all. Capital raised through the sale or issuance of equity securities may result in dilution to seek alternative supply sources. Any delayour current shareholders. Failure to obtain such additional financing or interruption in receiving suppliescapital could impairhave an adverse impact on our liquidity and financial condition including our ability to supply productscontinue as a going concern.
If we are unable to meet our financial projections, in order to invest in growth initiatives, we may need to raise additional funds through public or private equity or debt financing, including funding from governmental sources, which may not be possible as the success of raising additional funds is beyond our control. The sale of additional equity securities could result in significant dilution to our storescurrent shareholders, and accordingly,the securities issued in future financings may have rights, preferences and privileges that are senior to those of our common stock.
The terms of our Credit Facility and Term Loan expire in October 2022, as such, financing may be unavailable in amounts or on terms similar to the current agreements or acceptable to us, if at all, which could have a material adverse effectimpact on our business, resultsincluding our ability to continue as a going concern.
The Company continues to be actively engaged in identifying alternative sources of operationsfinancing that include raising additional funds through public or private equity, the disposal of assets, and financial condition.debt financing, including funding from governmental sources which may not be possible as the success of
raising additional funds is beyond the Company’s control. The abrupt lossincurrence of any of our third-party suppliersadditional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that could restrict the Company’s operations. Financing may be unavailable in amounts or on terms acceptable to the Company if at all, which may have a decline in the quality or quantity of materials supplied by any third-party suppliers could cause significant disruption in our business.material adverse impact on its business, including its ability to continue as a going concern.
Operational Risks
Our business could be adversely affected if we are unable to continue to lease retail stores in prime locations and successfully negotiate favorable lease terms.
Historically, we have generally been successful in negotiating and improving leases for renewal as our current leases near expiration. As of May 31, 2021, we had 29 leased retail stores. The leases are generally in prime retail locations and generally have lease terms of ten years, with rent being a fixed minimum base plus, for certain stores, a percentage of the store’s sales volume (subject to some adjustments) over a specified threshold. Many uncontrollable factors can impact our ability to renew these leases, including but not limited to, competition for key locations from other retailers. Only 5 of the Company’s store leases are renewable within the next two years and such stores generated approximately 3% of our fiscal 2021 net sales. The capital expenditures related to remodeling some of our retail stores are estimated to be approximately $2.7 million during fiscal 2022. These planned capital expenditures are at the discretion of management and not required by our landlords. Such planned capital expenditures could be delayed in the event of prolonged COVID-19 impacts on the Company’s operations and financial condition. We expect to be able to finance these capital expenditures with internally generated funds and existing financing arrangements. However, in the future, if we are unsuccessful at negotiating favorable renewal terms, locations or if more capital is required to meet landlord requirements for remodeling or relocating retail stores and we are unable to secure the necessary funds to complete these projects, our business, financial condition, and operating results could be adversely affected. In addition, we may not be able to locate suitable alternative sites in a timely manner. Our sales, earnings and cash flows will decline if we fail to maintain existing store locations, renew leases or relocate to alternative sites, in each case on attractive terms.
AsOur business could be adversely affected if our relationships with any primary vendors are terminated or if the delivery of May 31, 2018, we had 29 leased retail stores. The leases are generally in prime retail locationstheir products is delayed or interrupted.
We compete with other jewelry and generally have lease termstimepiece retailers for access to vendors that will provide us with the quality and quantity of ten years, with rent being a fixed minimum base plus, for certain stores, a percentage of the store’s sales volume (subjectmerchandise necessary to some adjustments) over a specified threshold. Some ofoperate our leases are up for renewal within the next two yearsbusiness, and many uncontrollable factors can impactour merchandising strategy depends upon our ability to renew these leases, including but not limited to competitionmaintain good relations with significant vendors. Certain brand name timepiece and jewelry manufacturers have distribution agreements with our Company that, among other things, provide for keyspecific sales locations, from other retailers. Approximately 17% ofyearly renewal terms and early termination provisions at the Company’s store leases are renewable within two years. Thesemanufacturer’s discretion. In fiscal 2021, merchandise supplied by our largest luxury timepiece supplier and sold through our stores generatedaccounted for approximately 9%20% of our fiscal 2018total net sales from continuing operations. The capital expenditures relatedOur relationships with primary suppliers are generally not pursuant to long-term agreements. We obtain materials and manufactured items from third-party suppliers. Any delay or interruption in our suppliers’ abilities to provide us with necessary materials and components, including as a result of the on-going COVID-19 pandemic and its impact on suppliers, may require us to seek alternative supply sources. Any delay or interruption in receiving supplies could impair our ability to supply products to our retail stores are estimated to be approximately $13.2 million overand, accordingly, could have a material adverse effect on our business, results of operations and financial condition. The abrupt loss of any of our significant third-party suppliers or a decline in the next two years to remodel, relocatequality or open new stores,quantity of materials supplied by any third-party suppliers could cause significant disruption in accordance with our strategic plan. Of the $13.2 million, we estimate that $9.4 million will be spent in fiscal 2019 leaving the balance to fiscal 2020. These planned capital expenditures are at the discretion of management and not required by our landlords. We are able to finance these capital expenditures with internally generated funds and existing financing arrangements.business.
We may not successfully manage our inventory, which could have an adverse effect on our net sales, profitability, cash flow and liquidity.
As a retail business, our results of operations are dependent on our ability to manage our inventory. To properly manage our inventory, we must be able to accurately estimate customer demand and supply requirements and purchase new inventory accordingly. If we fail to sell our inventory, we may be required to write-down our inventory or pay our vendors without new purchases, creating additional vendor financing, which would have an adverse impact on our earnings and cash flows. Additionally, a significant portion of the merchandise we sell is carried on a consignment basis prior to sale or is
otherwise financed by vendors, which reduces our required capital investment in inventory. Any significant change in these consignment or vendor financing relationships could have a material adverse effect on our net sales, cash flows and liquidity.
Fluctuations in the availability and prices of our raw materials and finished goods may adversely affect our results of operations.
We offer a large selection of distinctive high quality merchandise, including diamond, gemstone and precious metal jewelry, rings, wedding bands, earrings, bracelets, necklaces, charms, timepieces and gifts. Accordingly, significant changes in the availability or prices of diamonds, gemstones, and precious metals we require for our products could adversely affect our earnings. We do not maintain long-term inventories or otherwise hedge a material portion of the price of raw materials. A significant increase in the price of these materials could adversely affect our net sales and gross margins.
The level of our indebtedness could adversely affect our operations, liquidity and financial condition.
Our debt levels fluctuate from time to time based on seasonal working capital needs. The following table sets forth our total indebtedness (including bank indebtedness and current and long-term portion of debt), total stockholders’ equity, total capitalization and ratio of total indebtedness to total capitalization as of:
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* Retrospectively revised (refer to “Significant Transaction” above and to note 18 of our audited consolidated financial statements which are included elsewhere in this Annual Report)
We believe that our financial situation has improved compared to the prior fiscal year. A high level of debt could adversely affect our results of operations, liquidity and financial condition. Some examples of how high level of indebtedness could affect our results of operations, liquidity and financial condition may include the following:
make it difficult for us to satisfy our obligations with respect to our indebtedness;
increase our vulnerability to adverse economic and industry conditions;
increase our vulnerability to fluctuations in interest rates;
require us to dedicate a substantial portion of cash from operations to the payment of debt service, thereby reducing the availability of cash to fund working capital, capital expenditures and other general corporate purposes;
limit our ability to obtain additional financing for working capital, capital expenditures, general corporate purposes or acquisitions;
place us at a disadvantage compared to our competitors that have a lower degree of leverage; and
negatively affect the price of our stock.
Significant restrictions on our borrowing capacity could result in our inability to fund our cash flow requirements or maintain minimum excess availability requirements under the terms of our secured asset-based credit facility needed to support ourday-to-day operations.
On October 23, 2017, in connection with the Aurum Transaction, the Company entered into a new senior secured credit facility with Wells Fargo Canada Corporation for a maximum amount of CAD$85.0 million (US$65.9 million) (the “New Credit Facility”). The New Credit Facility, which matures in October 2022, replaced the Company’s prior $110.0 million revolver credit facility and its prior senior secured $31.0 million term loan facility which were repaid in full as a result of the Company’s divestiture of Mayors. The New Credit Facility also provides the Company with an option to increase the total commitments thereunder by up to CAD$13.0 million (US$10.1 million). The Company will only have the ability to exercise this accordion option if it has the required borrowing capacity at such time. The New Credit Facility bears interest at a rate of CDOR plus a spread ranging from 1.5% - 3.0% depending on the Company’s excess availability levels. Under the New Credit Facility, the Company is not required to comply with a minimum adjusted EBITDA financial covenant. The sole financial covenant which the Company is required to adhere to is to maintain minimum excess availability of not less than CAD$8.5 million (US$6.6 million) at all times, except that the Company shall not be in breach of this covenant if excess availability falls below CAD$8.5 million (US$6.6 million) for not more than two consecutive business days once during any fiscal month.
On June 29, 2018, the Company secured a CAD$12.5 million (US$ 9.7 million) senior secured term loan (the “New Term Loan”) with Crystal Financial LLC (“Crystal”). The New Term Loan, which matures in October 2022, is subordinated in lien priority to the New Credit Facility and bears interest at a rate of CDOR plus 8.25%. Under the New Term Loan, the Company will be required to adhere to similar financial covenants as under the New Credit Facility (maintain minimum excess availability of not less than CAD$8.5 million (US$6.6 million) at all times, except that the Company shall not be in breach of this covenant if excess availability falls below CAD$8.5 million (US$6.6 million) for not more than two consecutive business days once during any fiscal month). In addition, the New Term Loan includes seasonal availability blocks imposed from December 20th to January 20th of each year of CAD$9.5 million (US$7.4 million) and from January 21st to February 20th of each year of CAD$4.5 million (US$3.5 million). The long term senior secured term loan is required to be repaid upon maturity. The New Term Loan does not require the Company to comply with a minimum adjusted EBITDA financial covenant.
The Company’s borrowing capacity under the New Credit Facility and New Term Loan is based upon the value of the Company’s inventory and accounts receivable, which is periodically assessed by its lender and based upon these reviews the Company’s borrowing capacity could be significantly increased or decreased.
Both the Company’s New Credit Facility and New Term Loan are subject to cross default provisions with all other loans pursuant to which if the Company is in default of any other loan, the Company will immediately be in default of both the New Credit Facility and the New Term Loan. In the event that excess availability falls below CAD$8.5
million (US$6.6 million) for more than two consecutive business days once during any fiscal month, this would be considered an event of default under the New Credit Facility and New Term Loan agreements, that provides the lenders the right to require the outstanding balances borrowed under the Company’s New Credit Facility and New Term Loan to become due immediately, which would result in cross defaults on the Company’s other borrowings. The Company expects to have excess availability of at least CAD$8.5 million (US$6.6 million) for at least the next twelve months.
The New Credit Facility and New Term Loan also contain limitations on the Company’s ability to pay dividends, more specifically, among other limitations, the Company can pay dividends only at certain excess borrowing capacity thresholds. The Company is required to either i) maintain excess availability of at least 40% of the borrowing base in the month preceding payment or ii) maintain excess availably of at least 25% of the borrowing base and maintain a fixed charge coverage ratio of at least 1.10 to 1.00. Other than these financial covenants related to paying dividends, the terms of the New Credit Facility and New Term Loan provide that no financial covenants are required to be met other than already described.
The Company’s lenders under its New Credit Facility and its New Term Loan may impose, at any time, discretionary reserves, which would lower the level of borrowing availability under its credit facilities (customary for asset-based loans), at their reasonable discretion, to: i) ensure that the Company maintains adequate liquidity for the operation of its business, ii) cover any deterioration in the amount of value of the collateral, and iii) reflect impediments to the lenders to realize upon the collateral. There is no limit to the amount of discretionary reserves that the Company’s lenders may impose at their reasonable discretion. No discretionary reserves were imposed during fiscal 2018, fiscal 2017, and fiscal 2016 by the Company’s current or former lenders.
Additional financing or capital that may be required may not be available on commercially reasonable terms, or may not be available at all. Capital raised through the sale or issuance of equity securities may result in dilution to our current shareholders. Failure to obtain such additional financing or capital could have an adverse impact on our liquidity and financial condition including our ability to continue as a going concern.
In order to invest in growth initiatives, the Company may need to raise additional funds through public or private equity or debt financing, including funding from governmental sources, which may not be possible as the success of raising additional funds is beyond our control. The sale of additional equity securities could result in significant dilution to our current shareholders, and the securities issued in future financings may have rights, preferences and privileges that are senior to those of our common stock. The terms of our New Credit Facility and New Term Loan expire in October 2022, as such, financing may be unavailable in amounts or on terms acceptable to us, or at all, which could have a material adverse impact on our business.
Applicable laws and regulations related to consumer credit may adversely affect our business.
The operation of our credit business subjects us to substantial regulation relating to disclosure and other requirements upon origination, servicing, debt collection and particularly upon the amount of finance charges we can impose. Any adverse change in the regulation of consumer credit could adversely affect our earnings. For example, new laws or regulations could limit the amount of interest or fees we, or our banks, can charge on consumer loan accounts, or restrict our ability to collect on account balances, which could have a material adverse effect on our earnings. Compliance with existing and future laws or regulations could require material expenditures or otherwise adversely affect our business or financial results. Failure to comply with these laws or regulations, even if inadvertent, could result in negative publicity, and fines, either of which could have a material adverse effect on our results of operations.
We are exposed to currency exchange risks that could have a material adverse effect on our results of operations and financial condition. Prior to October 23, 2017, the date of the Aurum Transaction, a substantial portion of our sales were recorded in U.S. dollars.
Prior to October 23, 2017, the date of the Aurum transaction, a substantial portion of our sales were received in U.S. dollars. Subsequent to the Aurum Transaction, our sales and expenses are primarily entered into in Canadian dollars; however, there remains a portion of the purchases we make from our suppliers that are denominated in U.S. dollars. As a result, a depreciation of the Canadian dollar against the U.S. dollar would increase the cost of acquiring those goods in Canadian dollars, which would have a negative effect on our gross profit margin. Subsequent to the Aurum Transaction, foreign exchange gain or losses recorded in earnings relate tonon-Canadian dollar transactions.
For purposes of financial reporting, our financial statements are reported in U.S. dollars by translating, net sales and expenses from Canadian dollars at the average exchange rates prevailing during the period, while assets and liabilities are translated atyear-end exchange rates, with the effect of such translation recorded in accumulated other comprehensive income. For fiscal 2019, we are considering changing the Company’s reporting currency from U.S. dollars to Canadian dollars and to begin reporting our financial results in Canadian dollars.
We operate in a highly competitive and fragmented industry.
The retail jewelry business is highly competitive and fragmented, and we compete with nationally-recognized jewelry chains as well as a large number of independent regional and local jewelry retailers and other types of retailers who sell jewelry and gift items, such as department stores and mass merchandisers. We also compete withe-commerce sellers of jewelry. Because of the breadth and depth of this competition, we are constantly under competitive pressure that both constrains pricing and requires extensive merchandising and marketing efforts in order for us to remain competitive.
We are controlled by a single shareholder whose interests may be different from yours.
As of May 31, 2018, The Grande Rousse Trust (“Grande Rousse”) beneficially owns or controls 76.0% of all classes of our outstanding voting shares, which are directly owned by Montrovest B.V. (“Montrovest”) and Mangrove Holding S.A. (“Mangrove”). Montrovest and Mangrove own 49.3% and 26.7% of our outstanding voting shares respectively. The trustee of Grande Rousse is Meritus Trust Company Limited (the “Trustee”). Confido Limited has the power to remove the Trustee and as a result may be deemed to have beneficial ownership of the Class A voting shares held by Montrovest and Mangrove. Under our restated articles, Montrovest and Mangrove, as holders of the Class B multiple voting shares, have the ability to control most actions requiring shareholder approval, including electing the members of our Board of Directors and the issuance of new equity.
Grande Rousse, Montrovest and Mangrove may have different interests than you have and may make decisions that do not correspond to your interests. In addition, the fact that we are controlled by one shareholder may have the effect of delaying or preventing a change in our management or voting control.
Terrorist acts or other catastrophic events could have a material adverse effect on our business and results of operations.
Terrorist acts, acts of war or hostility, natural disasters or other catastrophic events could have an immediate disproportionate impact on discretionary spending on luxury goods upon which our operations are dependent. For example, in the aftermath of the terrorist attacks carried out on September 11, 2001, tourism and business travel was significantly reduced in all of our markets, which had an adverse impact on our net sales. Similarly, the SARS epidemic in Toronto, Ontario in the spring of 2003 had an adverse impact on net sales in our stores in that region. Similar future events could have a material adverse impact on our business and results of operations.
We may not be able to adequately protect our intellectual property and may be required to engage in costly litigation as a protective measure.
To establish and protect our intellectual property rights, we rely upon a combination of trademark and trade secret laws, together with licenses, exclusivity agreements and other contractual covenants. In particular, the “Birks” trademarks are of significant value to our retail operations. The measures we take to protect our intellectual property rights may prove inadequate to prevent misappropriation of our intellectual property. Monitoring the unauthorized use of our intellectual property is difficult. Litigation may be necessary to enforce our intellectual property rights or to determine the validity and scope of the proprietary rights of others. Litigation of this type could result in substantial costs and diversion of resources, may result in counterclaims or other claims against us and could significantly harm our results of operations.
A significant data privacy breach or security breach of our information systems could disrupt or negatively affect our business.
The protection of customer, employee and company data is important to us, and our customers expect that their personal information will be adequately protected. The regulatory environment surrounding information security and
data privacy is becoming increasingly demanding, as requirements in respect of personal data use and processing, including significant penalties fornon-compliance, continues to evolve in the various jurisdictions in which the Company does business. Although we have developed and implemented systems and processes that are designed to protect our information and prevent data loss and other security breaches, such measures cannot provide absolute security.security and our business could still be exposed to risks. Attacks may be targeted at us, our vendors or customers, or others who have entrusted us with information. Data and security breaches can also occur as a result of non-technical issues including intentional or inadvertent breach by employees or persons with whom we have commercial relationships that result in the unauthorized release of personal or confidential information. We rely upon information technology networks and systems, some of which are managed by third parties, to process, transmit and store electronic information, and to manage or support a variety of business processes and activities, includinge-commerce sales, supply chain, merchandise distribution, customer invoicing and collection of payments. We use information technology systems to record, process and summarize financial information and results of operations for internal reporting purposes and to comply with regulatory financial reporting, legal and tax requirements. Additionally, we collect and store sensitive data, including intellectual property, proprietary business information, the proprietary business information of our customers and suppliers, as well as personally identifiable information of our customers and employees, in our information technology systems. The secure operation of these information technology networks, and the processing and maintenance of this information is critical to our business operations and strategy. To date, our business and operations have not been materially impacted by a cyber-attack, security breach, or data breach, however a significant breach of customer, employee or company data could damage our reputation, our relationship with customers and the Birks brand and could result in lost sales, sizable fines, violation of applicable privacy and other laws, significant breach-notification costs and lawsuits as well as adversely affect results of operations. In addition, it could harm our ability to execute our business and adversely impact sales, costs and earnings. Because of the rapidly evolving types of cyber-attacks and the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and often are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate cost-effective preventative measures. We may need to expend significant resources to protect
against security breaches or to address problems caused by breaches. Since March 2020, we have implemented a work from home policy due to the COVID-19 outbreak for our corporate workforce in Montreal. Remote work could increase our cyber security risk, create data accessibility concerns, and make us more susceptible to communication disruptions, any of which could adversely impact our business operations.
Failure to successfully implement or make changes to information systems could disrupt or negatively impact our business.
In addition to regularly evaluating and making changes and upgrades to our information systems, we have begun to implement since fiscal 2016, a new enterprise resource planning (“ERP”) system with the Microsoft Dynamics D365 for Retail platform in order to update our retail systems including point of sale (POS), supply chain, warehouse management, wholesale, and finance. While we follow a disciplined methodology when evaluating and making such changes, there can be no assurances that we will successfully implement such changes, that such changes will occur without disruptions to our operations, that the new or upgraded systems will achieve the desired business objectives or that the internal controls will be effective in preventing misstatements in financial reporting. Any such disruptions, inadequate internal controls or the failure to successfully implement new or upgraded systems such as those referenced above, could have a material adverse effect on our results of operations and could also affect our reputation, our relationship with customers and our brands.
Our customer, employee and vendor relationships could be negatively affected if we fail to maintain our corporate culture and reputation.
We believe we have a well-recognized culture and reputation that our consumers associate with a high level of integrity, customer service and quality merchandise, and it is one of the reasons customers shop with us and employees choose us as a place of employment. Any significant damage to our reputation could diminish customer trust, weaken our vendor relationships, reduce employee morale and productivity and lead to difficulties in recruiting and retaining qualified employees.
Risks Related to the Economy and External Factors, including Regulations
Our business depends, in part, on factors affecting consumer spending that are out of our control.
Our business, like other retailers, depends on consumer demand for our products and, consequently, is sensitive to a number of factors that are beyond our control that influence consumer spending, including general economic conditions, consumer confidence in future economic conditions and domestic and international political conditions, tourism, recession and fears of recession, consumer debt, disposable consumer income, conditions in the housing market, consumer perceptions of personal well-being and security, fuel prices, inclement weather, interest rates, foreign exchange rates, sales tax rate increases, inflation, and war and fears of war. Jewelry purchases are discretionary for consumers and may be particularly and disproportionately affected by adverse trends in the general economy and the equity markets. Adverse changes in factors affecting discretionary consumer spending could reduce consumer demand for our products, resulting in a reduction in our sales and harming our business and operating results. A substantial portion of our customers use credit, either from our private label and proprietary credit cards or another consumer credit source, to purchase jewelry and timepieces. When there is a downturn in the general economy, fewer people may use or be approved for credit, which could result in a reduction in net sales and/or an increase in credit losses, which in turn, could lead to an unfavorable impact on our overall profitability. The on-going COVID-19 pandemic has negatively impacted the global economy and reduced the amount of discretionary income available for consumers to purchase our products. We have seen decreases in consumer spending as a result of the COVID-19 pandemic, and such trends may continue. These circumstances have been amplified by the significant decline in global travel that has also occurred as a result of the COVID-19 pandemic. If periods of decreased consumer spending continue, our sales could be negatively impacted, and our financial condition and results of operations could be adversely affected. Consequently, our belief that we currently have sufficient liquidity to fund our operations is based on certain assumptions about the future state of the economy, the future availability of borrowings to fund our operations and our future operating performance. To the extent that the economy and other conditions affecting our business are significantly worse than we anticipate, we may not achieve our projected level of financial performance and we may determine that we do not have sufficient capital to fund our operations.
We are exposed to currency exchange risks that could have a material adverse effect on our results of operations and financial condition.
A portion of the purchases we make from our suppliers are denominated in U.S. dollars. As a result, a depreciation of the Canadian dollar against the U.S. dollar would increase the cost of acquiring those goods in Canadian dollars, which would have a negative effect on our gross profit margin. In addition, material fluctuations in foreign currency exchange rates could reduce our borrowing availability under our Credit Facility which is denominated in Canadian dollars, and limit our ability to finance our operations.
We operate in a highly competitive and fragmented industry.
The retail jewelry and timepiece business is highly competitive and fragmented, and we compete with nationally-recognized jewelry chains as well as a large number of independent regional and local jewelry and timepiece retailers and other types of retailers who sell jewelry, timepieces, and gift items, such as department stores and mass merchandisers. We also compete with e-commerce sellers of jewelry and timepieces. Because of the breadth and depth of this competition, we are constantly under competitive pressure that both constrains pricing and requires extensive merchandising and marketing efforts in order for us to remain competitive.
We are controlled by a single shareholder whose interests may be different from yours.
As of May 20, 2021, The Grande Rousse Trust (“Grande Rousse”) beneficially owns or controls 74.5% of all classes of our outstanding voting shares, which are directly owned by Mangrove Holdings S.A (“Mangrove”) and Montel Sarl (“Montel”), previously Montrovest B.V. Montel and Mangrove own 48.3% and 26.2% of our outstanding voting shares respectively. The trustee of Grande Rousse is Meritus Trust Company Limited (the “Trustee”). Confido Limited has the power to remove the Trustee and as a result may be deemed to have beneficial ownership of the Class A voting shares held by Montel and Mangrove. Under our restated articles, Montel and Mangrove, as holders of the Class B multiple voting shares, have the ability to control most actions requiring shareholder approval, including electing the members of our Board of Directors and the issuance of new equity.
Grande Rousse, Montel and Mangrove may have different interests than you have and may make decisions that do not correspond to your interests. In addition, the fact that we are controlled by one shareholder may have the effect of delaying or preventing a change in our management or voting control.
Terrorist acts or other catastrophic events could have a material adverse effect on our business and results of operations.
Terrorist acts, acts of war or hostility, natural disasters or other catastrophic events could have an immediate disproportionate impact on discretionary spending on luxury goods upon which our operations are dependent, and could have a material adverse impact on our business and results of operations. We have been, and may continue to be affected in the future, by widespread protests such as the protests related to social injustices that have taken place in various cities across Canada in June 2020. Such protests can disrupt foot traffic at our stores, thereby negatively impacting sales, cause temporary store closures, and lead to inventory shrinkage, and property damage, all of which could adversely impact our sales and results from operations.
Environmental and climate changes could affect the Company’s business.
The Company recognizes that climate change is a serious risk to society and therefore continues to take steps to reduce the Company’s impact on the environment. Adverse effects of climate change, such as extreme weather events, particularly over a prolonged period of time, could negatively impact the Company’s business and results of operations if such conditions limit our consumer’s ability to access our stores, cause our consumers to limit discretionary spending, or disrupt our supply chains or distribution channels. Social, ethical and environmental matters influence the Company’s reputation, demand for merchandise by consumers, the ability to recruit staff, relations with suppliers and standing in the financial markets. The Company’s success is dependent on the strength and effectiveness of its relationships with its various stakeholders: customers, shareholders, employees and suppliers. In recent years, stakeholder expectations have increased, as these stakeholders expect businesses to consider social, ethical, and
environmental impacts while making business decisions, and the Company’s success and reputation will depend on its ability to meet these higher expectations. The Company’s success also depends upon its reputation for integrity in sourcing its merchandise, which, if adversely affected could impact consumer sentiment and willingness to purchase the Company’s merchandise.
Legal and Compliance Risks
Applicable laws and regulations related to consumer credit may adversely affect our business.
The operation of our credit business subjects us to substantial regulation relating to disclosure and other requirements upon origination, servicing, debt collection and particularly upon the amount of finance charges we can impose. Any adverse change in the regulation of consumer credit could adversely affect our earnings. For example, new laws or regulations could limit the amount of interest or fees we, or our banks, can charge on consumer loan accounts, or restrict our ability to collect on account balances, which could have a material adverse effect on our earnings. Compliance with existing and future laws or regulations could require material expenditures or otherwise adversely affect our business or financial results. Failure to comply with these laws or regulations, even if inadvertent, could result in negative publicity, and fines, either of which could have a material adverse effect on our results of operations.
The Company conducts retail operations in Canada and conducts wholesale operations in Canada, the United StatesNorth America and the United Kingdom. The Company sources its inventory from several suppliers within and outside North America, and has cross border financing arrangements. As a result, the Company is subject to the risks of doing business in jurisdictions within and outside North America.
The Company generates the majority of its net sales in Canada. The Company also relies on certain foreign third-party vendors and suppliers. As a result, the Company is subject to the risks of doing business in jurisdictions within and outside North America, including:
the laws, regulations and policies of governments relating to loans and operations, the costs or desirability of complying with local practices and customs and the impact of various anti-corruption, anti-money laundering and other laws affecting the activities of the Company;
potential negative consequences from changes in taxation policies or currency restructurings;
potential negative consequences from the application of taxation policies, including transfer pricing rules and sales tax matters;
import and export licensing requirements and regulations, as well as unforeseen changes in regulatory requirements;
economic instability in foreign countries;
uncertainties as to enforcement of certain contract and other rights;
the potential for rapid and unexpected changes in government, economic and political policies, political or civil unrest, acts of terrorism or the threat of boycotts; and
inventory risk exposures.
Changes in regulatory, political, economic, or monetary policies and other factors could require the Company to significantly modify its current business practices and may adversely affect its future financial results. For example, the Company could be adversely impacted by U.S. trade policies, legislation, treaties and tariffs, including trade policies and tariffs affecting China, the E.U., Canada and Mexico, as well as retaliatory tariffs by such countries. Such tariffs and, if enacted, any further legislation or actions taken by the U.S. government that restrict trade, such as additional tariffs or trade barriers, and other protectionist or retaliatory measures taken by governments in Europe, Asia and elsewhere, could have a negative effect on the Company’s ability to sell products in those markets.
While these factors and the effect of these factors are difficult to predict, any one or more of them could lower the Company’s revenues, impact its cash flow, increase its costs, reduce its earnings or disrupt its business.
Risks Related to Class A Voting Shares
Our share price could be adversely affected if a large number of Class A voting shares are offered for sale or sold.
Future issuances or sales of a substantial number of our Class A voting shares by us, Montrovest,Montel, Mangrove, or another significant shareholder in the public market could adversely affect the price of our Class A voting shares, which may impair our ability to raise capital through future issuances of equity securities. As of May 31, 2018,2021, we had 10,242,91110,610,973 Class A voting shares issued and outstanding. Sales of restricted securities in the public market, or the availability of these Class A voting shares for sale, could adversely affect the market price of Class A voting shares.
As a retail jewelerretailer of jewelry and timepieces with a limited public float, the price of our Class A voting shares may fluctuate substantially, which could negatively affect the value of our Class A voting shares and could result in securities class action claims against us.
The price of our Class A voting shares may fluctuate substantially due to, among other things, the following factors: (1) fluctuations in the price of the shares of a small number of public companies in the retail jewelry business; (2) additions or departures of key personnel; (3) announcements of legal proceedings or regulatory matters; and (4) general volatility in the stock market. The market price of our Class A voting shares could also fluctuate substantially if we fail to meet or exceed expectations for our financial results or if there is a change in financial estimates or securities analysts’ recommendations.
Significant price and value fluctuations have occurred in the past with respect to the securities of retail jewelry and related companies. In addition, because the public float of our Class A voting shares is relatively small, the market price of our Class A voting shares is likely to be volatile. There is limited trading volume in our Class A voting shares, rendering them subject to significant price volatility. In addition, the stock market has experienced volatility that has affected the market prices of equity securities of many companies, and that has often been unrelated to the operating performance of such companies. A number of other factors, many of which are beyond our control, could also cause the market price of our Class A voting shares to fluctuate substantially. In the past, following periods of downward volatility in the market price of a company’s securities, class action litigation has often been pursued. If our Class A voting shares were similarly volatile and litigation was pursued against us, it could result in substantial costs and a diversion of our management’s attention and resources.
We are governed by the laws of Canada, and, as a result, it may not be possible for shareholders to enforce civil liability provisions of the securities laws of the U.S.
We are governed by the laws of Canada. Our assets are located outside the U.S. and some of our directors and officers are residents outside of the U.S. As a result, it may be difficult for investors to effect service within the U.S. upon us or our directors and officers, or to realize in the U.S. upon judgments of courts of the U.S. predicated upon civil liability of Birks Group and such directors or officers under U.S. federal securities laws. There is doubt as to the enforceability in Canada by a court in original actions, or in actions to enforce judgments of U.S. courts, of the civil liabilities predicated upon U.S. federal securities laws.
We are subject to the continued listing requirements of the NYSE American. If we are unable to comply with such requirements, our common stock could be delisted from the NYSE American, which would limit investors’ ability to effect transactions in our common stock and subject us to additional trading restrictions.
Our common stock is currently listed on NYSE American. In order to maintain our listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of stockholders’ equity and a minimum number of public shareholders. NYSE American may delist the securities of any issuer for other reasons involving the judgment of NYSE American.
On August 13, 2020, we were notified by NYSE American that we were not in compliance with the continued listing standards set forth in Section 1003(a)(ii) of the NYSE American Company Guide (the “Company Guide”). That section applies if a listed company has stockholders’ equity of less than U.S. $4.0 million and has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years. Furthermore, on December 9, 2020, we were notified by NYSE American that we were not in compliance with the continued listing standards set forth in Section 1003(a)(i) of the Company Guide. That section applies if a listed company has stockholders’ equity of less than U.S. $2.0 million and has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years. Lastly, upon filing of our financial statements for the fiscal period ended March 27, 2021 on this Form 20-F, we expect to be non-compliant with the continued listing standards as set forth in Section 1003(a)(iii)
of the Company Guide which applies if a listed company has stockholders’ equity of less than U.S. $6.0 million and has reported losses from continuing operations and/or net losses in its five most recent fiscal years.
In accordance with the procedures and requirements of Section 1009 of the Company Guide, we submitted our plan of compliance on September 6, 2020 addressing how we intend to regain compliance with Section 1003(a)(ii) of the Company Guide.
On October 22, 2020, NYSE American notified us that it accepted the compliance plan and granted us an extension for our continued listing until the end of the Plan Period. We can regain compliance under Sections 1003(a)(i) and 1003(a)(iii) of the Company Guide under the compliance plan approved by NYSE American on October 22, 2020, which granted us an extension for our continued listing until February 6, 2022. We are not required to submit an additional plan to NYSE American with respect to Section 1003(a)(i).
We are subject to periodic review by NYSE American during the Plan Period, including quarterly monitoring, to determine if we are making progress consistent with the plan. If we do not regain compliance by the end of the Plan Period, or if we do not make progress consistent with the plan during the Plan Period, NYSE American may initiate delisting procedures as appropriate. We cannot assure that we will make sufficient progress to regain compliance with Sections 1003(a)(i), 1003(a)(ii) and 1003(a)(iii) by February 6, 2022 under our initial plan or any revision we make to such plan or that NYSE American will accept any revisions we propose to make to our initial plan, or that delisting proceedings may not be instituted against us based on our not meeting certain elements of the near-term milestones we had included as part of the compliance plan we submitted. If delisting proceedings are instituted against us, we would have the right to appeal any delisting determination.
If NYSE American delists our common stock from trading on the exchange and we are not able to list our securities on another national securities exchange, we expect our common stock would qualify to be quoted on an over-the-counter market. If this were to occur, we could experience a number of adverse consequences, including: limited availability of market quotations for the common stock; reduced liquidity for our securities; our common stock being categorized as a “penny stock,” which requires brokers trading in our common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our common stock; and decreased ability to issue additional securities or obtain additional financing in the future.
We expect to maintain our status as a “foreign private issuer” under the rules and regulations of the SEC and, thus, are exempt from a number of rules under the Exchange Act of 1934 and are permitted to file less information with the SEC than a company incorporated in the U.S.
As a “foreign private issuer,” we are exempt from rules under the Exchange Act of 1934, as amended (“the Exchange Act”) that impose certain disclosure and procedural requirements for proxy solicitations under Section 14 of the Exchange Act. In addition, our officers, directors and principal shareholders are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and the rules under the Exchange Act with respect to their purchases and sales of our Class A voting shares. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act, nor are we required to comply with Regulation Fair Disclosure,
which restricts the selective disclosure of material information. Accordingly, there may be less publicly available information concerning us than there is for other U.S. public companies.
If we were treated as a passive foreign investment company (“PFIC”) some holders of our Class A voting shares would be subject to additional taxation, which could cause the price of our Class A voting shares to decline.
We believe that our Class A voting shares should not be treated as stock of a PFIC for U.S. federal income tax purposes, and we expect to continue operations in such a manner that we will not be a PFIC. If, however, we are or become a PFIC, some holders of our Class A voting shares could be subject to additional U.S. federal income taxes on gains recognized with respect to our Class A voting shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred under the PFIC rules.
Our assessment of our internal control over financial reporting may identify “material weaknesses” in the future which could reduce confidence in our financial statements and negatively affect the price of our securities.
We are subject to reporting obligations under U.S. securities laws. Beginning with our Annual Report on Form20-F for fiscal 2008, Section 404 of the Sarbanes-Oxley Act requires us to prepare a management report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over our financial reporting is not effective. If at any time in the future, we are unable to assert that our internal control over financial reporting is effective, market perception of our financial condition and the trading price of our stock may be adversely affected and customer perception of our business may suffer, all of which could have a material adverse effect on our operations. Further, our auditors do not audit our internal controls over financial reporting due to our market capitalization, and therefore, there has been no independent attestation of our internal controls over financial reporting.
If the costs and burden of being a public company outweigh its benefits, we may in the future decide to discontinue our status as a publicly traded company.
As a public company, we currently incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and the NYSE American, LLC (“NYSE American”), have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls as well as mandating certain corporate governance practices. Our management and other personnel devote a substantial amount of time and financial resources to these compliance initiatives. As such, if it is determined in the future that the costs and efforts of being a public company outweigh the benefits of being a public company, we may decide to discontinue our status as a publicly traded or registered company.
Item 4. |
THE COMPANY
Corporate History and Overview
Birks Group is a leading designer of fine jewelry, timepieces and gifts and operator of luxury jewelry and timepiece retail stores in Canada, with wholesale operationscustomers in North America and the U.K..U.K. As of May 31, 2018,2021, Birks Group operated 2726 stores under the Maison Birks brand in most major metropolitan markets in Canada, and 2one retail locationslocation in Calgary and Vancouveroperated under the Brinkhaus brand, one retail location in Vancouver operated under the Graff brand and one retail location in Vancouver operated under the Patek Philippe brand. Bijoux Birks fine jewelry collections are also available through select SAKS Fifth Avenue stores in Canada and the U.S., select Mappin & Webb and Goldsmiths locations in the United Kingdom, in Mayors stores in the United States as well as at certain jewelry retailers across North America. For fiscal 2018,2021, we had net sales of $114.4$143.1 million from continuing operations.
Birks’ predecessor company was founded in Montreal in 1879 and developed over the years into Canada’s premier designer, manufacturer and retailer of fine jewelry, timepieces, sterling and plated silverware and gifts. In addition to being a nationwide retailer with a strong brand identity, we are also highly regarded in Canada as a designer and producer of jewelry.jewelry designer. We believe that operating our stores under the Maison Birks brand and the fact that we sell Birks-brandedBijoux Birks branded jewelry distinguishes us from many competitors because of our longstanding reputation and heritage, our ability to offer distinctively designed, exclusive products, and by placing a strong emphasis on providing a superior shopping experience to our clients.
Birks was purchased by Borgosesia Acquisitions Corporation in 1993, a predecessor company of Regaluxe Investment S.á.r.l., which is referred to in this Annual Report as “Regaluxe”.Regaluxe. Effective March 28, 2006, Regaluxe was acquired through a merger with Iniziativa S.A. (“Iniziativa”). As of May 31, 2007 and June 4, 2007, respectively, following a reorganization, Iniziativa and Montrolux S.A. transferred all of the shares they respectively held in the Company to their parent company, Montrovest.Montrovest B.V.(“Montrovest”now known as Montel). Following the 1993 acquisition of Birks, Birks’ operations were evaluated and a program of returning Birks to its historic core strength as the leading Canadian prestige jeweler was initiated.
In August 2002, Birks invested $15.05$23.6 million to acquire approximately 72% of the voting control in Mayors, which was experiencing an unsuccessful expansion beyond its core markets and was incurring significant losses.
Between August 2002 and November 2005, it became apparent to both Mayors and Birks management that it was in the best interests of the shareholders to combine its operations. The Company believed that such combination would create a stronger capital base, improve operating efficiencies, reduce the impact of regional issues, simplify the corporate ownership of Mayors, eliminate management and board of directors’ inefficiencies with managing intercompany issues, and possibly increase shareholder liquidity. Upon the consummation of the merger on November 14, 2005, each outstanding share of Mayors common stock not then owned by Birks was converted into 0.08695 Class A voting shares of Birks. As a result of the merger, Mayors common stock ceased trading on the American Stock Exchange (“AMEX”) and Birks Group began trading on the AMEX, which is now known as the NYSE American, under the trading symbol “BGI.” Following the merger, Birks Group worked very diligently to fully integrate the Birks business with Mayors. As a result of the merger, we believe Birks Group improved operational efficiencies and diversity and depth of its products and distribution capabilities.
In December 2015, Montrovest (now known as Montel) transferred a portion of its Class A and Class B voting shares to Mangrove and as a result Montrovest owns 49.3%Montel owned 49.2% of the voting shares of the Company and Mangrove ownsowned 26.7%.
In August 2017, Birks entered into the Stock Purchase Agreement with Aurum, the largest fine watch and jewelry retailer in the U.K., to sell its wholly-owned subsidiary Mayors. The Aurum Transaction closed on October 23, 2017 for total cash consideration of $135.0 million (U.S. $106.8 million (net of closing adjustments)million). As part of the transaction, Birks entered into a 5 year5-year distribution agreement with Aurum to sell Birks fine jewelry in the U.K. at Mappin & Webb, Goldsmiths stores and on theire-commerce websites.
In the last three fiscal years, we invested a total of approximately $18.2$21.0 million in capital expenditures primarily associated with the remodeling of our existing store network. During fiscal 2021, additions include $1.5 million towards the remodeling of two stores in Calgary, $0.6 million towards the relocation of a store within the same mall in Montreal as well as $0.4 million towards various renovations across the retail network, including the addition of various new brand counters and shop-in-shops in certain stores. Prior to the openingCOVID-19 pandemic, and during periods in fiscal 2021 when government restrictions related to the pandemic were lifted and/or lightened, the Company saw some benefit from the significant investments it had made in fiscal years 2019 and 2018, including the completion of new stores.major transformative renovations at our three flagship locations, in Montreal (completed in June 2018), Vancouver (completed in February 2019) and Toronto (completed in March 2019). We expect to continuealso opened our Graff and Patek Philippe boutiques in Vancouver (completed in December 2018), and continued to invest in capital expenditures in fiscal 2019 primarily related to store remodels, store relocations associated with lease renewals and the ongoing implementation of a new enterprise resource planning (“ERP”) implementation.system.
In fiscal 2021, we continued to transition away from a very capital-intensive period from fiscal 2017 to fiscal 2019 for the Company during which we implemented our growth-driven strategic objective, which includes the remodeling of our retail network including our flagship locations. The capital intensive spending period resulted in temporarily lower sales and contribution margin at the flagship locations under renovation, with a view to generate future long-term returns for the Company. Prior to the COVID-19 pandemic and forced store closures beginning in March 2020, the Company experienced a return to normal selling conditions during fiscal 2020. The on-going COVID-19 pandemic has significantly impacted our business, sales, and results from operations, and the Company continues to monitor its impacts. We currently expect to invest a significantly lower amount in capital expenditures in fiscal 2022 and fiscal 2023 as we focus solely on operations and on delivering a return on our strategic investment spending during the period from fiscal 2017 to fiscal 2019. In fact, in fiscal 2022, approximately $2.7 million is expected to be spent in capital expenditures, primarily related to store remodels. We expect to finance these capital expenditures from operating cash flows, and existing financing arrangements including tenant allowances from certain of our landlords. Such planned capital expenditures could be delayed in the event of prolonged COVID-19 impacts on the Company’s operations and when possible from other additional external sources of financing.financial condition.
The Company regularly reviews the locations of its retail network that leads to decisions that impact the opening, relocation or closing of these locations. During fiscal 2018,2021, we relocated a Maison Birks store in Montreal, Québec and remodeled a Maison Birks store in Calgary, Alberta. During fiscal 2021, we also closed a Maison Birks store in Vancouver, British Columbia as a result of a complete renovation of the mall in which the store was located. During fiscal 2020, we relocated a Maison Birks store in Toronto, Ontario and opened a new Maison Birks Store in Calgary, Alberta. During
fiscal 2019, we closed two Maison Birks stores (one in Edmonton, Alberta and one in Toronto, Ontario) and closed one store operated under the Brinkhaus brand in Oshawa, OntarioVancouver, British Colombia. During fiscal 2019, we also opened one store operated under the Graff brand and a newone store operated under the Patek Philippe brand in Surrey,Vancouver, British Columbia. During fiscal 2019, we also relocated two Maison Birks stores (one in Vancouver, British Columbia and closed no stores. Inone in Toronto, Ontario) during the remodeling of their respective malls.
The Toronto flagship store re-opened in its original location in March 2019 after having been moved to a smaller temporary location in the mall (which itself was undergoing significant construction activities) during fiscal 2017, we did not open or close any stores. During fiscal 2016, we closed one Birks store in St. John, New Brunswick, and opened one Birks store in Edmonton, Alberta. During fiscal 2016, two Birks stores were relocated in Laval, Quebec and Etobicoke, Ontario.
2017. The Company temporarily closed its Montreal flagship store in early 2018 to undertake a complete renovation of the store. The renovations were completed and the storere-opened in June 2018. During 2017, the Toronto flagship store moved to a smaller temporary locationCertain delays in the mall, which itself is undergoing significant construction activities. Thesecompletion of these two events havemajor renovation projects significantly affected the sales of the Company.Company during fiscal years 2019 and 2018.
Our sales are divided into two principal product categories: (i) jewelry and other, and (ii) timepieces. Jewelry and other also includes sales of other product offerings we sell such as giftware, as well as repair and custom design services.
The following table compares our sales from continuing operations of each product category for the last three fiscal years (dollars in thousands):
Fiscal Year-Ended | ||||||||||||||||||||||||
March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||||||||||||||
Jewelry and other | $ | 67,296 | 47.0 | % | $ | 90,175 | 53.2 | % | $ | 99,043 | 65.6 | % | ||||||||||||
Timepieces | 75,772 | 53.0 | % | 79,245 | 46.8 | % | 52,006 | 34.4 | % | |||||||||||||||
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Total | $ | 143,068 | 100 | % | $ | 169,420 | 100 | % | $ | 151,049 | 100 | % | ||||||||||||
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The decline in sales from the jewelry and other product categories in fiscal 2021 as compared to fiscal 2020 is primarily driven by softer bridal jewelry sales and by a decrease in Bijoux Birks fine jewelry resulting from the negative impacts of the COVID-19 pandemic on our retail and wholesale operations. The decline in sales from the jewelry and other product categories in fiscal 2020 as compared to fiscal 2019 is primarily driven by softer bridal jewelry sales and by a decrease in Bijoux Birks fine jewelry resulting from a decrease in discounting versus fiscal 2019. During fiscal 2019, the Company rationalized its inventory in order to liquidate discontinued inventory assumed as part of the Mayors transaction.
Jewelry and other Timepieces Total Fiscal Year-Ended March 31, 2018 March 25, 2017* March 26, 2016* $ 80,453 70.3% $ 80,503 69.1% $ 90,793 70.6% 33,925 29.7% 35,933 30.9% 37,858 29.4% $ 114,378 100.0% $ 116,436 100.0% $ 128,651 100.0%
* Retrospectively revised (referThe decline in sales from the timepieces product category in fiscal 2021 as compared to “Significant Transaction” above andfiscal 2020 is primarily driven by the negative impacts of the COVID-19 pandemic on our retail operations, including the impact of the temporary store closures at intermittent periods during fiscal 2021. The increase in sales from the timepieces product category in fiscal 2020 as compared to note 18 of our audited consolidated financial statements which are included elsewhere in this Annual Report)fiscal 2019 was driven primarily by the Company’s flagship stores being open for the entire fiscal year post-renovations.
Birks Group is a Canadian corporation. Our corporate headquarters are located at 2020 Robert-Bourassa Boulevard, Suite 200, Montreal, Québec, Canada H3A 2A5. Our telephone number is (514)397-2501. Our website iswww.birksgroup.com.
The U.S. Securities and Exchange Commission (“SEC”) maintains a website that contains reports, proxy and information statements, and other information regarding issuers (including Birks Group) that file electronically with the SEC at http://www.sec.gov. The Company also maintains a public website at http://www.birks.com.
Products
We offer distinctively designed, exclusive products and a large selection of distinctive high quality merchandise at various price points. This merchandise includes designer jewelry, our own designed jewelry, diamond, gemstone,branded Bijoux Birks and designer jewelry that includes diamonds, gemstones, and precious metalmetals.
Our Bijoux Birks brand consists of internally developed luxury fine jewelry and bridal collections as well as watches and gift items. We also offer a large selection of desirable timepieces at various price points and giftware. Part of our strategy is to increase our exclusive offering of internally-designed and/or produced goods sold to our customers, consisting primarily of fine jewelry, bridal offerings, and timepieces, all of which leverage the Bijoux Birks brand loyalty in their respective markets and in order to differentiate our products with unique and exclusive designs.
Our stores, operating under the Maison Birks, Brinkhaus, Graff and BrinkhausPatek Phillippe brands, carry a large selection of prestigious brand name timepieces, including our own proprietary Birks watch line as well as timepieces made by Baume & Mercier, Breitling, Bvlgari, Cartier, Chaumet, Dinh Van Paris, Frédérique Constant, Graff, Grand Seiko, IWC, Jaeger Lecoultre, Longines, Montblanc, Panerai, Patek Phillippe, Richard Mille, Rolex, Tag Heuer, Tudor, Vacheron Constantin,and Van Cleef & Arpels and soon we will also be offering Richard Mille.Arpels. We also carry an exclusive collection of high quality jewelry and timepieces that we design. We emphasize Bijoux Birks brand jewelry offerings but also include other designer jewelry made by Bvlgari, Chaumet, Dinh Van Paris, Graff, Marco Bicego, Messika, Roberto Coin, Van Cleef & Arpels,Vhernier and soon Vhernier.Yoko London. We also offer a variety of high quality giftware, including writing instruments made by Montblanc.
We have one primary channel of distribution, the retail division, which accounts for approximately 96%91% of net sales, as well as twothree other channels of distribution, namelye-commerce, wholesale, and wholesale,gold exchange which combined to account for approximately 4%9% of net sales.
Product Design, Development, Sourcing and Manufacturing
We established a product development process that supports our strategy to further develop and enhance our product offering in support of the Birks brand development. During fiscal 2018, fiscal 20172021, 2020, and fiscal 2016,2019, approximately 52%31%, 45%46%, and 45%, respectively, of our jewelry products acquired for sale were internally designed sourced or produced.and sourced. A significant portion of internally designed products are associated with the Bridal segment, which is largely reliant on customized special orders. The decrease in fiscal 2021 is primarily the result of the impact of COVID-19 and the significant sales decrease in the first quarter which subsequently impacted replenishments for the remainder of the fiscal year. Products that are not designed and manufactured for us, are sourced from suppliers worldwide, enabling us to sell an assortment of fine quality merchandise often not available from other jewelers in our markets. Our staff of buyers procures distinctive high quality merchandise directly from manufacturers, diamond cutters, and other suppliers worldwide. Our loose stone acquisition team, product sourcing team and category managers specialize in sourcing merchandise in categories such as diamonds, precious gemstones, pearls, timepieces, gold jewelry, and giftware. Retail and merchandising personnel frequently visit our stores and those of competitors to compare value, selection, and service, as well as to observe client reaction to merchandise selection and determine future needs and trends.
Availability of Products
Although purchases of several critical raw materials, notably platinum, gold, silver, diamonds, pearls and gemstones, are made from a relatively limited number of sources, we believe that there are numerous alternative sources for all raw materials used in the manufacture of our finished jewelry, and that the failure of any principal supplier would not have a material adverse effect on our operations. Any material changes in foreign or domestic laws and policies affecting international trade may have a material adverse effect on the availability of the diamonds, other gemstones, precious metals andnon-jewelry products we purchase. Significant changes in the availability or prices of diamonds, gemstones and precious metals we require for our products could adversely affect our earnings. We do not maintain long-term inventories or otherwise hedge a material portion of the price of raw materials. A significant increase in the price of these materials could adversely affect our net sales, gross margin and earnings. However, in the event of price increases, we will generally attempt to pass along any price increases to our customers.
In fiscal 2018,2021, we purchased jewelry, timepieces and giftware for sale in our stores and online from several suppliers. Many of these suppliers have long-standing relationships with us. We compete with other jewelry and timepiece retailers for access to vendors that will provide us with the quality and quantity of merchandise necessary to operate our business. Our relationships with primary suppliers are generally not pursuant to long-term agreements. Although we believe that alternative sources of supply are available, the abrupt loss of any of our key vendors, or a decline in the quality or quantity of merchandise supplied by our vendors could cause significant disruption in our business. In fiscal 2018,2021, merchandise supplied by our largest luxury jewelrytimepiece supplier and sold through our stores operating under the Birks and Brinkhaus brands accounted for approximately 15%20% of our total net sales. If our largest luxury jewelrytimepiece supplier
terminated its distribution agreements with us, such termination would have a material adverse effect on our business, financial condition and operating results. We believe that current relationships with our key vendors are strong.
Seasonality
Our sales are highly seasonal, with the third fiscal quarter (which includes the holiday shopping season) historically contributing significantly higher net sales than any other quarter during the year. In addition to seasonality trends, fiscal 2021 was also impacted by factors attributable to COVID-19, such as widespread restrictions and temporary store closures, particularly in the first quarter, which shifted net sales between quarters. Net sales from continuing operations in the first, second, third and fourth quarters in fiscal 20182021 were 23%10%, 20%30%, 36%39% and 20%21%, respectively, in fiscal 20172020 were 26%, 24%, 21%, 35%32% and 20%18%, respectively, and in fiscal 20162019 were 25%, 22%21%, 32%33% and 21%, respectively.
Retail Operations, Merchandising and Marketing
General
We believe we are differentiated from most of our competitors because we offer distinctively designed, exclusive products and a selection of distinctive high quality merchandise at a wide range of price points. We keep the majority of our inventory on display in our stores rather than at our distribution facility. Although each store stocks a representative selection of jewelry, timepieces, and giftware, certain inventory is tailored to meet local tastes and historical merchandise sales patterns of specific stores.
We believe that our stores’ elegant surroundings and distinctive merchandise displays play an important role in providing an atmosphere that encourages sales. We pay careful attention to detail in the design and layout of each store, particularly lighting, colors, choice of materials, and placement of display cases. We also use window displays as a means of attractingwalk-in traffic and reinforcing our distinctive image. Our Visual Displaymarketing department designs and creates window and store merchandise case displays for all of our stores. Window displays are frequently changed to provide variety and to reflect seasonal events such as Christmas, Chinese New Year, Valentine’s Day, Mother’s Day and Father’s Day.
Personnel and Training
We place substantial emphasis on the professionalism of our sales force to maintain our position as a leading prestige jeweler. We strive to hire only highly motivated, professional and customer-oriented individuals. All new sales professionals attend an intensive training program where they are trained in technical areas of the jewelry and timepiece business, specific sales and service techniques and our commitment to client service. Management believes that attentive personal service and knowledgeable sales professionals are key components to our success.
As part of our commitment to continuous,on-the-job training, we have established “Birks University”, a formalized system ofin-house training with a primary focus on client service, selling skills and product knowledge that involves extensive classroom training, the use of detailed operational manuals,in-store mentorship programs and a leading edge product knowledge program which includeson-line testing.quizzes. In addition, we conductin-house training seminars on a periodic basis and administer training modules with audits to (i) enhance the quality and professionalism of all sales professionals, (ii) measure the level of knowledge of each sales professional, (iii) update sales professionals on changes to our credit programs available to customers and changes to applicable laws, including anti-money laundering legislation, and (iv) identify needs for additional training. We also provide all management team members with more extensive training that emphasizes leadership skills, general management skills,“on-the-job” coaching and training instruction techniques.
Advertising and Promotion
One of our key marketing goals is to build on our reputation in our core markets as a leading luxury jewelry brand offering high quality merchandise in an elegant, sophisticated environment. For example, we frequently run advertisements that associate the “Birks”Bijoux Birks brand with internationally recognized brand names such as Cartier, Patek Philippe, Rolex, and Van Cleef & Arpels, among others. Advertising and promotions for all stores are developed by our personnel in conjunction with outside creative professionals.
Our advertising reinforces our role as a world classworld-class luxury brand that aims to deliver a total shopping experience that is as memorable as our merchandise. Our marketing efforts consist of advertising campaigns on digital platforms (including on our website)website and on social media), billboards, print, direct mail, magazine, special events, media and public relations, distinctive store design, elegant displays, partnerships with key suppliers and associations with prestige institutions. The key goals of our marketing initiatives are to enhance customer awareness and appreciation of our retail brand, Maison Birks, as well as theour Bijoux Birks product brand, and to increase customer traffic, client acquisition and retention and net sales.
Credit Operations
We have a private label credit card, which is administered by a third-party bankfinancial institution that owns the credit card receivable balances. As of April 2018, weWe also have a Birks proprietary credit card, which we administer. Our credit programs are intended to complement our overall merchandising and sales strategy by encouraging larger and more frequent sales to a loyal customer base. Sales under the Birks private label credit cardscard and the Birks in-house credit card accounted for approximately 14.6%15.9% of our net sales during fiscal 20182021 and 16.0%19.1% during fiscal 2017. The reduction2020. These results reflect the launch of the Birks Prestige private label credit card program in % penetration of our net sales is substantially dueApril 2018. We have continued to the implementation of certain mandatory down payment requirements on certain interest-free plans.implement attractive term plans during fiscal 2021. Sales under the Birks private label credit cards are generally made without credit recourse to us. However, we are permitted to ask the bank to approve credit purchases under these private label credit cards, for which the bank holds credit recourses against the Company if the customer does not pay. These recourse credit lines are limited to 25% of the nonrecourse credit lines issued by the banks for the private label Birks credit card.
Distribution
Our retail locations receive the majority of their merchandise directly from our distribution warehouse located in Montreal, Québec. Merchandise is shipped from the distribution warehouse utilizing various air and ground carriers. We also transfer merchandise between retail locations to balance inventory levels and to fulfill client requests, and a very small portion of merchandise is delivered directly to the retail locations from suppliers.
Competition
The North American retail jewelry industry is highly competitive and fragmented, with a few very large national and international competitors and many medium and small regional and local competitors. The market is also fragmented by price and quality. Our competitors include national and international jewelry chains as well as independent regional and local jewelry and timepiece retailers. We also compete with other types of retailers such as department stores and specialty stores and, to a lesser extent, catalog showrooms, discounters, direct mail suppliers, televised home shopping networks, and puree-commerce players. Many of these competitors have greater financial resources than we do. We believe that competition in our markets is based primarily on the total brand experience including trust, quality craftsmanship, product design and exclusivity, product selection, marketing and branding elements (including web), service excellence, including after sales service, and, to a certain extent, price. With theon-going consolidation of the retail industry, we believe that competition with other general and specialty retailers and discounters will continue to increase. Our success will depend on various factors, including general economic and business conditions affecting consumer spending, the performance of national and international retail operations, the acceptance by consumers of our merchandising and marketing programs, store locations and our ability to properly staff and manage our stores.
Regulation
Our operations are affected by numerous federal and provincial laws that impose disclosure and other requirements upon the origination, servicing and enforcement of credit accounts and limitations on the maximum amount of finance charges that may be charged by a credit provider. In addition to our private label and proprietary credit cards, credit to our clients is primarily available through third-party credit cards such as American Express®, Discover®, MasterCard®, Union Pay® and Visa®, without recourse to us in the case of a client’s failure to pay. Any change in the regulation of credit that would materially limit the availability of credit to our traditional customer base could adversely affect our results of operations and financial condition.
We generally utilize the services of independent customs agents to comply with U.S. and Canadian customs laws in connection with our purchases of gold, diamond and other jewelry merchandise from foreign sources.
Diamonds extracted from certain regions in Africa, including Zimbabwe, that are believed to be used to fund terrorist activities, are considered conflict diamonds. We have designed a conflict minerals compliance initiative to implement a consistent, company-wide compliance process which includes:
Educating our employees and suppliers about conflict minerals;
Establishing a cross-functional management team including members of senior management and subject-matter experts from relevant functions such as supply chain, product development, merchandising, legal and finance responsible for implementing our conflict minerals compliance strategy; and
Reporting mechanisms for questions and concerns, including a toll-free confidential and anonymous hotline.
Our compliance program has been designed to conform, in all material respects, with the framework in The Organization of Economic Co-operation and Development Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas Second Edition, and the related gold supplement for conflict minerals. In addition, we have adopted a conflict minerals policy which has been communicated to our suppliers and is included in our Merchandise Quality Manual and available on our website at www.birks.com. Our conflict mineral policy indicates that suppliers who do not comply with this policy will be reviewed and evaluated accordingly for future business and sourcing decisions.
We support the Kimberley Process, an international initiative intended to ensure diamonds are not illegally traded to fund conflict. As part of this initiative, we require our diamond suppliers to acknowledge compliance with the Kimberley Process and invoices received for diamonds purchased by us must include a certification from the vendor that the diamonds and diamond-containingdiamond containing jewelry are conflict free. Through this process and other efforts, we believe that the suppliers from whom we purchase diamonds exclude conflict diamonds from their inventories.
In August 2012, the SEC issued rules that require companies that manufacture products using certain “conflict minerals”, including gold, to determine whether those minerals originated in the Democratic Republic of Congo or adjoining countries (“DRC”). If the minerals originate in the DRC, or if companies are not able to establish where they originated, extensive disclosure regarding the sources of those minerals, and in some instances an independent audit of the supply chain, is required. We filed our fourthninth disclosure report on May 30, 201727, 2021 for the calendar year ended December 31, 2016 and our fifth disclosure report on May 31, 2018 for the calendar year ended December 31, 2017.2020. We determined that we had no reason to believe that any conflict minerals necessary to the functionality or production of our products may have originated in the DRC.
Trademarks and Copyrights
The designations Birks, and the Birks logos, are our principal trademarks and are essential to our ability to maintain our competitive position in the prestige jewelry segment. We maintain a program to protect our trademarks and will institute legal action where necessary to prevent others from either registering or using marks that are considered to create a likelihood of confusion with our trademarks. We are also the owner of the original jewelry designs created by ourin-house designers and have entered into agreements with several outside designers pursuant to which these designers have assigned to us the rights to use copyrights of designs and products created for us.
Organizational Structure
Not applicable.
Properties
In December 2000, we entered into a capital lease agreement for our Montreal head office and store pursuant to which we sold and leased back the building, including the Montreal flagship store, for a term of 20 years ending December 11, 2020. The net annual rental rate was CAD$2.2 million (approximately $1.6 million U.S. dollars) for the period that ended on December 11, 2016. On November 1, 2016, we entered into an agreement with the new owner of the building to terminate the then existing lease agreement for the building in advance of its expiry date in December 2020 and to lease the premises for our flagship store at its current location, which is an operating lease. As a result, a capital lease asset of CAD$8.7 million (approximately $6.5 million in U.S. dollars) and a capital lease obligation of CAD$11.6 million (approximately $8.7 million in U.S. dollars) at November 1, 2016 were derecognized and anon-cash gain of CAD$2.9 million (approximately $2.2 million in U.S. dollars) (included as part of other long-term liabilities) is being deferred and amortized over the term of the new lease of the flagship store.
We lease all of our store locations.locations as well as our corporate head office which includes a distribution center. We believe that all of our facilities are well maintained and in good condition and are adequate for our current needs. We are actively reviewingreview all leases that expire inwithin the next 12 months to determine whether to renew the leases. Over the past few years we have also decreased the number of stores we operate by closing certain underperforming stores. Going forward we plan to continue to evaluate the productivity of our existing stores and close unproductive stores. In addition, we plan to continue to review opportunities to open new stores in new prime retail locations when the right opportunities exist.
Following is a listing of all our properties as of March 31, 2018:
Size (Square Feet) | Expiration of Lease | Location | ||||||||||
Operating Stores | ||||||||||||
Bayshore Centre | 1,099 | September 2027 | Ottawa, ON | |||||||||
Bloor Flagship Store | February 2034 | Toronto, ON | ||||||||||
Brinkhaus | 1,946 | March | 2027 | Calgary, AB | ||||||||
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Carrefour Laval | 2,545 | April 2025 | Laval, QC | |||||||||
Chinook Shopping Centre | 3,661 | September 2024 | Calgary, AB | |||||||||
Dix-30 Mall | 1,691 | July 2023 | Brossard, QC | |||||||||
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Fairview Pointe-Claire | August 2030 | Pointe-Claire, QC | ||||||||||
First Canadian Place | 2,243 | August 2028 | Toronto, ON | |||||||||
Guildford Town Centre | 1,172 | December 2021 | | Surrey, BC | ||||||||
Graff Boutique | October 2028 | Vancouver, BC | ||||||||||
Mapleview Centre | 1,384 | June 2023 | Burlington, ON | |||||||||
Market Mall | 770 | November 2023 | Calgary, AB | |||||||||
Montreal Flagship Store | 7,714 | April 2032 | Montreal, QC | |||||||||
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Oshawa | 1,043 | December 2021 | Oshawa, ON | |||||||||
Park Royal | 1,797 | October 2024 | West Vancouver, BC | |||||||||
Patek Philippe Boutique | 850 | October 2028 | Vancouver, BC | |||||||||
PlaceSte-Foy | 1,472 | September 2027 | Ste-Foy, QC | |||||||||
Rideau Centre | 2,745 | May 2024 | Ottawa, ON | |||||||||
Saskatoon | 3,486 | January 2022 | Saskatoon, SK | |||||||||
Sherway Gardens | 2,726 | September 2025 | Etobicoke, ON | |||||||||
Southgate Shopping Centre | April 2028 | Edmonton, AB | ||||||||||
Square One | 1,825 | May 2024 | Mississauga, ON | |||||||||
Toronto Dominion Square | 5,568 | August 2030 | Calgary, AB | |||||||||
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Vancouver Flagship Store | 20,221 | January 2026 | Vancouver, BC | |||||||||
Victoria | 1,561 | March | 2022 | Victoria, BC | ||||||||
West Edmonton Mall | 2,244 | August 2024 | Edmonton, AB | |||||||||
Willowdale Fairview Mall | August 2029 | North York, ON | ||||||||||
Winnipeg | 3,187 | February 2023 | Winnipeg, MB | |||||||||
Yorkdale | 2,930 | October 2026 | Toronto, ON | |||||||||
Other Properties | ||||||||||||
Montreal corporate office | 26,423 | May 2033 | Montreal, QC |
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Total annual base rent for the above locations for fiscal 20182021 was approximately $11.1$12.5 million.
Item 4A. |
Not applicable
Item 5. |
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included elsewhere in this Annual Report. The following discussion includes certain forward-looking statements. For a discussion of important factors, including the continuing development of our business, actions of regulatory authorities and competitors and other factors which could cause actual results to differ materially from
the results referred to in the forward-looking statements, see Item 3., “Key Information” under the heading “Risk Factors” and the discussion under the heading “Forward-Looking Information” at the beginning of this Annual Report.
Throughout this Annual Report, we refer to our fiscal year ending March 27, 2021, as fiscal 2021, and our fiscal years ended March 31, 2018, March 25, 2017,28, 2020, and March 26, 2016,30, 2019, as fiscal 2018, fiscal 2017,2020 and fiscal 2016,2019, respectively. Our fiscal year ends on the last Saturday in March of each year. The financial reporting period referred to as fiscal 2018 consisted of 53 weeks while fiscal 2017years ended March 27, 2021 and fiscal 2016,March 28, 2020 consisted of 52 weeks.weeks, respectively.
Overview
Birks Group is a leading designer of fine jewelry, timepieces and gifts and operator of luxury jewelry stores in Canada, with wholesale operationscustomers in North America and the U.K. As of March 31, 2018,27, 2021, we have two reportable segments, “Retail” and “Other.” Retail consists of our retail operations whereby we operate 26 stores in Canada under the Maison Birks brand, except for two stores operatedone store under the Brinkhaus brand, one store under the Graff brand, and one store under the Patek Phillippe brand. Other consists primarily of our wholesale business, our e-commerce business and wholesaleour gold exchange business. Prior to the Aurum Transaction, we operated stores in Florida and Georgia under the Mayors brand except for one store operated under the Rolex brand, which was included in the “Retail” segment in prior periods.
As of March 31, 2018,27, 2021, our retail operation’s total square footage was approximately 100,000.87,000. The average square footage of our three Maison Birks flagship stores was approximately 11,700,12,500, while the average square footage for all other Maison Birks retail stores was approximately 2,400.2,200. The average square footage of our twothe Brinkhaus, Graff, and Patek Phillippe locations was 2,600.approximately 1,200.
Significant Transaction
On August 11, 2017, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Aurum Holdings Ltd., a company incorporated under the laws of England and Wales, which assigned its rights and obligations under the Purchase Agreement to Aurum Group USA, Inc., a Delaware corporation (“Aurum”) to sell its wholly-owned subsidiary, Mayors. Pursuant to the terms and conditions of the Stock Purchase Agreement, at the closing, Aurum acquired 100% of the outstanding equity interests of Mayors. The sale transaction closed on October 23, 2017 for total cash consideration of $106.8 million, net of closing adjustments. The Aurum Transaction was entered into on a debt-free basis except for certain specified liabilities.
In addition to the Aurum Transaction, Birks entered into a 5 year distribution agreement with Aurum (the “Distribution Agreement”) to sell Birks fine jewelry in the U.K. at Mappin & Webb and Goldsmiths stores and on their respectivee-commerce platforms. Furthermore, pursuant to the Distribution Agreement, the Birks collections will continue to be sold in the United States through Mayors stores in Florida and Georgia. The Distribution Agreement is an important achievement in the Company’s strategy to develop the Birks brand into a global luxury brand. The Aurum Transaction constitutes a significant step in the Company’s efforts to strengthen its balance sheet and to execute its strategic vision of investing in the Birks brand together with the retailing of internationally-renowned jewelry and timepiece brands in Canada.
On October 23, 2017, as a condition to the closing of the Aurum Transaction, the Company entered into (i) an Inventory Purchase Agreement whereby Birks purchased approximately $1.8 million in inventory from Mayors; (ii) a Transition Services Agreement whereby Birks agreed to provide certain transition services to Mayors and its wholly-owned subsidiaries for a period of six months following the closing of the Aurum Transaction, subject to certain renewal rights, (iii) a Services Agreement whereby Mayors agreed to provide certain services to Birks for a period of one year following the closing of the Aurum Transaction, subject to certain renewal rights and (iv) an Authorized Dealer Agreement with Mayors Jewelers of Florida, Inc. (Mayors together Mayor’s Jewelers of Florida, Inc., the “Authorized Dealer”) whereby the Authorized Dealer will promote the sale of Birks branded products and trademarks in the United States.
Proceeds from the Aurum Transaction were used to pay down outstanding debt under the Company’s previous senior secured credit facilities that included term debt and working capital debt associated with Mayors. The Company does not intend on paying dividends as a result of the Aurum Transaction, but rather, the remaining transaction proceeds will be used by Birks to continue its strategic growth initiatives, specifically to invest in its Canadian flagship stores and new store concepts, as well as in its high-growth Birks brand wholesaling activities ande-commerce, as part of the Company’s omni-channel strategy. The Company expects that the next two years will be a capital intensive spending period during which the Company intends to fully renovate its three flagship stores
(Montreal, Toronto, and Vancouver) which may result in temporarily lower sales and contribution margin at these specified locations in order to generate future long-term returns for the Company.fiscal 2018
As a result of the Aurum Transaction, the Company has presented Mayors’ results as a discontinued operation in the consolidated statements of operations and cash flows for all periods presented. Furthermore, the assets and liabilities of Mayors have been segregated and reported as assets or liabilities of disposal group in the consolidated balance sheet of the comparative period of March 25, 2017. The tables below reconcile the Company’s results from continuing operations and from discontinuing operations for the fiscal years 2018, 2017,2021, 2020, and 2016,2019, respectively.
Year ended March 27, 2021 | ||||||||||||
Continuing operations | Discontinued operations | Combined operations | ||||||||||
(in $ 000’s) | ||||||||||||
Net sales | 143,068 | — | 143,068 | |||||||||
Cost of sales | 86,718 | — | 86,718 | |||||||||
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Gross profit | 56,350 | — | 56,350 | |||||||||
Selling, general, and administrative expenses | 53,713 | — | 53,713 | |||||||||
Impairment of long-lived assets | — | — | — | |||||||||
Depreciation and amortization | 5,458 | — | 5,458 | |||||||||
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Operating (loss) income | (2,821 | ) | — | (2,821 | ) | |||||||
Interest and other financial costs | 3,017 | — | 3,017 | |||||||||
Income tax expense | — | — | — | |||||||||
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Net (loss) income | (5,838 | ) | — | (5,838 | ) | |||||||
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Year ended March 28, 2020 | ||||||||||||
Continuing operations | Discontinued Operations | Combined operations | ||||||||||
(in $ 000’s) | ||||||||||||
Net sales | 169,420 | — | 169,420 | |||||||||
Cost of sales | 104,943 | — | 104,943 | |||||||||
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Gross profit | 64,477 | — | 64,477 | |||||||||
Selling, general, and administrative expenses | 65,867 | 552 | 66,419 | |||||||||
Impairment of long-lived assets | 309 | — | 309 | |||||||||
Depreciation and amortization | 4,845 | — | 4,845 | |||||||||
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Operating (loss) income | (6,544 | ) | (552 | ) | (7,096 | ) | ||||||
Interest and other financial costs | 5,683 | — | 5,683 | |||||||||
Income tax expense | — | — | — | |||||||||
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Net (loss) income | (12,227 | ) | (552 | ) | (12,779 | ) | ||||||
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Year ended March 31, 2018 | ||||||||||||
Continuing | Discontinued | Combined | ||||||||||
operations | Operations* | operations | ||||||||||
(in $ 000’s) | ||||||||||||
Net sales | 114,378 | 85,274 | 199,652 | |||||||||
Cost of sales | 70,824 | 55,917 | 126,741 | |||||||||
Gross profit | 43,554 | 29,357 | 72,911 | |||||||||
Selling, general, and administrative expenses | 51,823 | 23,871 | 75,694 | |||||||||
Restructuring charges | 688 | - | 688 | |||||||||
Depreciation and amortization | 2,549 | 1,285 | 3,834 | |||||||||
Impairment of long-lived assets | 2,156 | - | 2,156 | |||||||||
Operating (loss) income | (13,662) | 4,201 | (9,461) | |||||||||
Interest and other financial costs | 3,116 | 2,829 | 5,945 | |||||||||
Debt extinguishment charges | - | 2,702 | 2,702 | |||||||||
Income tax expense | 75 | 75 | ||||||||||
Gain on disposal of discontinued operations | - | (29,882) | (29,882) | |||||||||
Net (loss) income | (16,778) | 28,477 | 11,699 |
*Results from discontinued operations are included in the Company’s consolidated results for the period up to and including October 22, 2017.
Year ended March 30, 2019 | ||||||||||||
Continuing operations | Discontinued Operations* | Combined operations | ||||||||||
(in $ 000’s) | ||||||||||||
Net sales | 151,049 | — | 151,049 | |||||||||
Cost of sales | 92,472 | — | 92,472 | |||||||||
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Gross profit | 58,577 | — | 58,577 | |||||||||
Selling, general, and administrative expenses | 67,106 | 381 | 67,487 | |||||||||
Restructuring charges | 1,182 | — | 1,182 | |||||||||
Depreciation and amortization | 3,859 | — | 3,859 | |||||||||
Impairment of long-lived assets | 46 | — | 46 | |||||||||
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Operating (loss) income | (13,616 | ) | (381 | ) | (13,997 | ) | ||||||
Interest and other financial costs | 4,689 | — | 4,689 | |||||||||
Income tax expense | ||||||||||||
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Net (loss) income | (18,305 | ) | (381 | ) | (18,686 | ) | ||||||
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operations (in $ 000’s) - Net sales Cost of sales Gross profit Selling, general, and administrative expenses Restructuring charges Depreciation and amortization Operating (loss) income Interest and other financial costs Income tax expense Net (loss) income operations (in $ 000’s) - Net sales Cost of sales Gross profit Selling, general, and administrative expenses Restructuring charges Depreciation and amortization Gain on sale of assets Operating income Interest and other financial costs Income tax expense Net (loss) income Year ended March 25, 2017 Continuing Discontinued Combined operations operations 116,436 170,485 286,921 69,654 108,833 178,487 46,782 61,652 108,434 47,183 47,043 94,226 682 160 842 2,618 2,416 5,034 (3,701) 12,033 8,332 3,355 5,326 8,681 - (5,277) (5,277) (7,056) 11,984 4,928 Year ended March 26, 2016 Continuing Discontinued Combined operations operations 128,651 157,175 285,826 75,682 100,757 176,439 52,969 56,418 109,387 48,333 42,792 91,125 549 205 754 2,791 2,438 5,229 (3,229) - (3,229) 4,525 10,983 15,508 4,300 5,720 10,020 - 50 50 225 5,213 5,438
Description of operations – continuing operations
Our net sales are comprised of revenues, net of discounts, in each case, excluding sales tax. Sales are recognized at the point of sale when merchandise is taken or shipped. Sales of consignment merchandise are recognized on a full retail basis at such time that the merchandise is sold. Revenues for gift certificates and store credits are recognized upon redemption. Customers use cash, checks, debit cards, third-party credit cards, private label credit cards and house accountsproprietary credit cards to make purchases. The level of our sales is impacted by the number of transactions we generate and the size of our average retail sale.sales transaction.
Our operating costs and expenses are primarily comprised of cost of sales and selling, general and administrative expenses (“SG&A”). Cost of sales includes cost of merchandise, direct inbound freight and duties, direct labor related to repair services, the costs of our design and creative departments, inventory shrink, damage and obsolescence,inventory reserves, jewelry, watch and giftware boxes, as well as product development costs. SG&A includes, among other things, allnon-production payroll and benefits (includingnon-cash compensation expense), store and head office occupancy costs, overhead, credit card fees, information systems, professional services, consulting fees, repairs and maintenance, travel and entertainment, insurance, legal, human resources and training expenses. Occupancy, overhead and depreciation are generally less variable relative to net sales than other components of SG&A, such as credit card fees and certain elements of payroll, such as commissions. Another significant item in SG&A is marketing expenses, which include marketing, public relations and advertising costs (net of amounts received from vendors for cooperative advertising) incurred to increase customer awareness of both the Bijoux Birks product brand and our third party retailproduct brands. Marketing has historically represented a significant portion of our SG&A. As a percentage of net sales, marketing expenses represented 6.5%4.6%, 4.8%4.4%, and 4.4%5.8% of sales for fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. Additionally, SG&A includes indirect costs such as freight, including inter-store transfers, receiving costs, distribution costs, and warehousing costs. The amount of these indirect costs in SG&A was approximately $1.1 million, $1.1 million and $1.2 million for fiscal 2018, 2017, and 2016, respectively. Depreciation and amortization includes depreciation and amortization of our stores and head office, including buildings, leasehold improvements, furniture and fixtures, computer hardware and software and amortization of intangibles.
As we navigate through the COVID-19 pandemic and its continuing and unprecedented challenges, our attention remains focused on the execution of our short-term and long-term strategic plans.
Over the short-term, we will focus our efforts on those strategies and key drivers of our performance that are necessary in the current business climate, which include our ability to:
grow sales, gross margin rate and gross profits;
manage expenses and assets efficiently in order to optimize profitability and cash flow with the objective of growing EBITDA;
streamline the operational overhead costs that were incurred to support the operations of the Company prior to the Aurum Transaction;earnings before interest, tax, depreciation and amortization (“EBITDA”);
align our operations to effectively and efficiently deliver benefits to our shareholders; and
maintain flexible and cost effective sources of borrowings to finance our operations and strategies.
Over the long-term, we believe that the key drivers of our performance will be our ability to:
continue to develop our Bijoux Birks product brand through the expansion of all sales channels including international channels of distribution ande-commerce;
execute our merchandising strategy to increase net sales and maintain and expand gross margin by lowering discounts, developing and marketing higher margin exclusive and unique products, and further developing our internal capability to design, develop, and source products;
execute our marketing strategy to enhance customer awareness and appreciation of the Bijoux Birks product brand as well as our third party retailproduct brands with an objective of maintaining and eventually increasing customer traffic, client acquisition and retention and net sales through regional, national and international advertising campaigns using digital channels (including our website), billboards, print, direct mail, magazine,in-store events, community relations, media and public relations, partnerships with key suppliers, and associations with prestige institutions;
provide a superior omni-channel client experience through consistentconsistently outstanding customer service that will ensure customer satisfaction and promote frequent customer visits, customer loyalty, and strong customer relationships;
increase our retail stores’ average retail transaction, conversion rate, productivity of our store professionals, and inventory and four-wall profitability; and
recruit and retain top talent whose values are aligned with our omni-channel strategic visions.
Foreign Currency
Because our operations are based in Canada but our financial results are reported in U.S. dollars, our results are affected by foreign exchange rate changes. Revenue and expenses incurred in Canadian dollars are translated into U.S. dollars for reporting purposes. Changes in the value of the Canadian dollar compared to the U.S. dollar between
periods may materially impact our results and may materially affect period over period comparisons. Over the past several years, the value of the Canadian dollar has varied significantly compared to the U.S. dollar which has impacted the level of our borrowing capacity and, for reporting purposes, in some instances, has resulted in significant fluctuations in our net sales, expenses and our profits when expressed in U.S. dollars. As of March 31, 2018, we had not hedged these foreign exchange rate risks.
Fiscal 20182021 Summary – results from continuing operations
Net sales were $143.1 million for fiscal 2021, a decrease of $26.3 million, or 15.5% compared to net sales of $169.4 million in fiscal 2020. The decrease in net sales in fiscal 2021 was primarily attributed to the effects of COVID-19, and the resulting temporary closures of all stores across the retail channel that were in effect throughout the first quarter of fiscal 2021 and the temporary closures of certain stores (including in Ontario, Québec and Manitoba) at intermittent periods throughout the fiscal year including during the third and fourth quarters of fiscal 2021. The overall decrease was partially offset by strong e-commerce sales, representing approximately 4.9% of total net sales in the fiscal year, as compared to approximately 1.4% in fiscal 2020;
Comparable store sales decreased by 14.3% compared to fiscal year 2020, such decrease driven primarily by the temporary store closures in fiscal 2021 due to the COVID-19 pandemic. Comparable store sales as presented in the results of operations below for fiscal 2021 have not been adjusted to remove the impact of these temporary store closures;
Gross profit was $56.4 million, or 39.4% of net sales, for fiscal 2021 compared to $64.5 million, or 38.1% of net sales, for fiscal 2020. This decrease was primarily due to the reduction of sales volume caused by COVID-19, partially offset by an improvement of gross margin of 130 basis points. The increase of 130 basis points in gross margin percentage was mainly attributable to the Company’s strategic focus to reduce sales promotions and discounting as well as foreign currency gains due to the strengthened Canadian dollar, partially offset by a shift in product sales mix towards branded timepieces;
SG&A expenses were $53.7 million, or 37.5% of net sales, in fiscal 2021 compared to $65.9 million, or 38.9% of net sales, in fiscal 2020. SG&A expenses in fiscal 2021 decreased by $12.2 million versus SG&A expenses in fiscal 2020. This decrease is driven primarily by the effects of COVID-19 and various cost containment initiatives undertaken by management including lower occupancy costs ($3.5 million) driven by the negotiation of rent abatements with certain of the Company’s landlords , lower compensation costs ($6.5 million) driven by the impact of temporary lay-offs, reduced operating hours at retail locations, lower sales commissions due to the decrease in net sales, and temporary wage reductions at the corporate head office, wage subsidies ($1.4 million) and rent subsidies ($0.5 million), lower credit cards fees ($0.7 million) due to lower sales volume, lower marketing costs ($1.0 million) and lower general operating costs ($2.5 million) driven by cost containment measures. These year-over-year reductions in SG&A expenses were partially offset by the impact of the revaluation of certain deferred stock units, restricted stock units and share appreciation rights which increased the Company’s non-cash stock based compensation expense ($3.6 million) during the year due to the fluctuations in the Company’s stock price during the fiscal year. As a percentage of sales, SG&A expenses in fiscal 2021 have decreased by 140 basis points as compared to fiscal 2020;
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The Company’s fiscal |
• | The Company’s fiscal 2021 reported operating loss from continuing operations was |
The Company recognized a net incomeloss for fiscal 20182021 of $11.7$5.8 million, or $0.65$0.32 per share, all of which was comprised of a net loss from continuing operations, compared to a net loss for fiscal 2020 of $12.8 million, or $0.71 per share, comprised of a net loss from continuing operations of $16.8$12.2 million or $0.93$0.68 per share, and a net incomeloss from discontinued operations of $28.5 million (including aone-time gain on disposal of discontinued operations of $29.9 million), or $1.59 per share, compared to net income of $4.9$0.6 million, or $0.27 per share in fiscal 2017 comprised of a net loss from continuing operations of $7.1 million, or $0.39 per share, and a net income from discontinued operations of $12.0 million, or $0.66$0.03 per share.
Results of Operations
The following is a discussion of factors affecting our results of operations for fiscal 2018 and fiscal 2017. This discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Annual Report.
(1) | This is a non-GAAP financial measure defined below under “Non-GAAP Measures” and accompanied by a reconciliation to the most directly comparable GAAP financial measure. |
Comparable Store Sales – from continuing operations
We use comparable store sales as a key performance measure for our business. Comparable store sales include stores open in the same period in both the current and prior year. We include oure-commerce sales in comparable store calculations. Stores enter the comparable store calculation in their thirteenth full month of operation under our ownership. Stores that have been resized and stores that are relocated are evaluated on acase-by-case basis to determine if they are functionally the same store or a new store and then are included or excluded from comparable store sales, accordingly. Comparable store sales is calculated on a constant-exchange rate basis (see“Non-GAAP measures”) which eliminates the positive and negative effects that result from translating Canadian dollar sales into U.S. dollars due to the strengthening or weakening of the Canadian dollar in comparison to the U.S. dollar. Comparable store sales measures the percentage change in net sales for comparable stores in a period compared to the corresponding period in the previous year. If a comparable store is not open for the entirety of both periods, comparable store sales measures the change in net sales for the portion of time that such store was open in both periods. We believe that this measure provides meaningful information on our performance and operating
results. However, readers should know that this financial metric has no standardized meaning and may not be comparable to similar measures presented by other companies.
The percentage increase (decrease) in comparable store sales calculated on a constant-exchange rate basis (see“Non-GAAP measures”) for the periods presented below is as follows:
Fiscal Year Ended
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March 31, 2018 | March 25, 2017* | March 26, 2016* | ||||||||||
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Comparable store sales from continuing operations | (4 | )% | (8 | )% | 6% | |||||||
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* Retrospectively revised (refer to “Significant Transaction” above and to note 18 of our audited consolidated financial statements which are included elsewhere in this Annual Report)
Fiscal Year Ended | ||||||||||||
March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||
Comparable store sales from continuing operations | (14 | )% | 2 | % | 1 | % | ||||||
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The decrease in comparable store sales of 14% during fiscal 2021 is primarily related to the negative impacts of COVID-19, including the temporary store closures. During the first quarter of fiscal 2021, during which time the Company’s stores were temporarily closed, the Company experienced a 65% decrease in comparable store sales. In the second quarter of fiscal 2021, during which time the Company’s stores were fully re-opened, albeit operating at reduced hours and with lower levels of foot traffic, the Company experienced a 4% increase in comparable store sales, when compared to the second quarter of fiscal 2020. During the third and fourth quarters of fiscal 2021, 16 of the Company’s 29 retail stores, representing 55% of its store network, were temporarily closed for in-person shopping (but the majority remained open for concierge service and curbside pick-up) due to government orders for average durations of six to fifteen weeks. Despite the impact of these temporary store closures, the Company experienced increases in comparable store sales of 2% and 6% respectively in the third and fourth quarters of fiscal 2021. These increases were driven in part by the sales performance of third party branded watches as a result of the Company’s improved portfolio of third party watch brands, and the Company’s successful pointed marketing campaigns which led to increases in average sales transaction value throughout the retail network.
The increase in comparable store sales of 2% in fiscal 20182020 is relatedprimarily attributable to a decreasean increase in sales of third party branded fine jewelry and bridal offerings, primarilywatches driven by the fact that,Company’s improved portfolio and continued relationships with third party watch brands, as part of its strategic plan,well as by the Company beganinclusion in the renovation of two of its flagship stores (Montreal and Toronto), leading to a greater than anticipated temporary decline in sales volume during the construction period. When excluding the impact of lower sales at the Montreal and Toronto flagship locations, comparable store sales increased by 1% despite a softeningmetric of the luxury retail environmentnewly renovated Montreal flagship store which re-opened in Canada and overall weaker retail conditions during the holiday period. ThisJune 2018 following extensive renovations. The increase in comparable store sales of 1% in fiscal 2019 is attributable to the increasedin part by an increase in sales of Bijoux Birks branded products across the retail ande-commerce channels, an increase in sales of third party branded watches driven by the Company’s improved portfolio of third party watch brands, as well as the successful execution of targeted marketing campaigns. In fiscal 2017, the decrease in comparable store sales in Canada was primarily driven by a significant decrease in discretionary spending, partially related to difficult economic conditions in Western Canada. In fiscal 2016, the increase in comparable store sales was primarily related to an increase in our average retail sale transaction.
Fiscal 20182021 Compared to Fiscal 20172020
The following table sets forth, for fiscal 20182021 and fiscal 2017,2020, the amounts in our consolidated statements of operations:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
March 31, 2018 | March 25, 2017* | March 27, 2021 | March 28, 2020 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net sales | $ | 114,378 | $ | 116,436 | $ | 143,068 | $ | 169,420 | ||||||||
Cost of sales | 70,824 | 69,654 | 86,718 | 104,943 | ||||||||||||
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Gross profit | 43,554 | 46,782 | 56,350 | 64,477 | ||||||||||||
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Selling, general and administrative expenses | 51,823 | 47,183 | 53,713 | 65,867 | ||||||||||||
Restructuring charges | 688 | 682 | ||||||||||||||
Depreciation and amortization | 2,549 | 2,618 | 5,458 | 4,845 | ||||||||||||
Impairment of long-lived assets | 2,156 | - | — | 309 | ||||||||||||
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Total operating expenses | 57,216 | 50,483 | 59,171 | 71,021 | ||||||||||||
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Operating income | (13,662 | ) | (3,701 | ) | ||||||||||||
Operating loss | (2,821 | ) | (6,544 | ) | ||||||||||||
Interest and other financing costs | 3,116 | 3,355 | 3,017 | 5,683 | ||||||||||||
Income taxes | - | - | — | — | ||||||||||||
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Net (loss) from continuing operations, | (16,778 | ) | (7,056 | ) | ||||||||||||
Net loss from continuing operations, | (5,838 | ) | (12,227 | ) | ||||||||||||
Discontinued operations: | ||||||||||||||||
(Loss) income from discontinued operations, net of tax | (1,405 | ) | 11,984 | |||||||||||||
Gain on disposal of discontinued operations, net of tax | 29,882 | - | ||||||||||||||
Loss from discontinued operations, net of tax | — | (552 | ) | |||||||||||||
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Net income from discontinued operations | 28,477 | 11,984 | ||||||||||||||
Loss from discontinued operations | — | (552 | ) | |||||||||||||
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Net income | $ | 11,699 | $ | 4,928 | ||||||||||||
Net loss | $ | (5,838 | ) | $ | (12,779 | ) | ||||||||||
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* Retrospectively revised (refer to “Significant Transaction” above and to note 18 of our audited consolidated financial statements which are included elsewhere in this Annual Report)
Net Sales – from continuing operations
Fiscal Year Ended | ||||||||
March 27, 2021 | March 28, 2020 | |||||||
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Net sales – Retail | $ | 130,758 | $ | 160,981 | ||||
Net sales – Other | 12,310 | 8,439 | ||||||
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Total Net Sales | $ | 143,068 | $ | 169,420 | ||||
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Net sales – Retail Net sales – Other Total Net Sales Fiscal Year Ended March 31, 2018 March 25, 2017* (In thousands) $ 110,225 $ 113,644 4,153 2,792 $ 114,378 $ 116,436
* Retrospectively revised (refer to “Significant Transaction” above and to note 18 of our audited consolidated financial statements which are included elsewhere in this Annual Report)
NetTotal net sales for fiscal 20182021 were $114.4$143.1 million compared to $116.4$169.4 million for fiscal 2017,2020, which is a decrease of $2.0$26.3 million, or 1.7%15.5%, as compared to fiscal 2017.2020. Net retail sales were $5.9$30.2 million lowerless than lastthe comparable prior year on a constant currency basis (see“Non-GAAP measures”) after excluding the $2.5 million of higher sales dueperiod which was primarily attributed to the translation effects of COVID-19, andthe Company’s Canadian sales into U.S. dollars with a stronger Canadian dollar, primarily driven by the renovation of our Montreal and Toronto flagship storesresulting temporary store closures at intermittent periods during fiscal 2018, and the temporary closure of the Montreal flagship store for the last two months of the fiscal year, as well as a softer luxury retail environment in Canada throughout the fiscal year and particularly during the holiday season.year. The increase in Net Sales – Other of $1.4$3.9 million related primarily toincludes an increase in wholesaleour e-commerce sales of $1.7$4.7 million, driven byor 201%. The Company’s e-commerce sales represented approximatively 4.9% of total net sales, as compared to 1.4% in the Company’s entrance into the U.K market through its newly signed exclusive distribution agreement for Birks branded jewelry with Aurum, as well as greaterprior period. The increase in e-commerce sales, of $0.2 million driven by increased trafficalong with an increase to the Company’s updated website,our gold exchange business was partially offset by lower corporate salesa decrease in wholesale activity due to the impact of $0.5 million.the COVID-19 pandemic.
Gross Profit – from continuing operations
Fiscal Year Ended | ||||||||||||||||
March 31, 2018 | March 25, 2017* | Fiscal Year Ended | ||||||||||||||
(In thousands) | March 27, 2021 | March 28, 2020 | ||||||||||||||
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Gross Profit – Retail | $ | 42,019 | $ | 45,784 | $ | 49,868 | $ | 60,500 | ||||||||
Gross Profit – Other | 1,535 | 998 | 6,482 | 3,977 | ||||||||||||
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Total Gross Profit | $ | 43,554 | $ | 46,782 | $ | 56,350 | $ | 64,477 | ||||||||
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* Retrospectively revised (refer to “Significant Transaction” above and to note 18Gross profit was $56.4 million, or 39.4% of our audited consolidated financial statements which are included elsewhere in this Annual Report)
Total gross profitnet sales, for fiscal 2018 was $43.62021 compared to $64.5 million, or 38.1% of net sales, as compared to $46.8 million or 40.2% of net sales, infor fiscal 2017. Excluding $2.1 million of higher gross profit from the impact of translating the gross profit from Canadian dollars to U.S. dollars with a relatively stronger Canadian dollar, gross profit on a constant currency basis (see“Non-GAAP measures”) decreased by $5.3 million compared2020. This decrease was primarily due to the prior fiscal year period. The reduction of 210sales volume caused by COVID-19, partially offset by an improvement of gross margin of 130 basis points. The increase of 130 basis points in gross margin percentage was mainly attributable to the Company’s strategic focus to reduce sales promotions and discounting as well as foreign currency gains due to the strengthened Canadian dollar, partially offset by a shift in product sales mix and increasedtowards branded timepieces. Gross Profit – Retail for fiscal 2021 was $49.9 million, or 38.1% of net sales promotions as– Retail, compared to $60.5 million, or 37.6% of net sales – Retail for fiscal 2020, which is a resultdecrease of $10.6 million driven by the Montreal and Toronto flagship locations undergoing major renovations during the fiscal year.reduction of sales volume caused by COVID-19. Gross Profit – Other for fiscal 20182021 was $1.5$6.5 million, or 52.7% of net sales – Other compared to $1.0$4.0 million, or 47.1% of sales for fiscal 2017,2020, which is an increase of $0.5$2.5 million or 53.8%, as compared to fiscal 2017. This 53.8% increase is driven by increased wholesale andthe volume experienced in e-commerce activity during the fiscal year, as the Company continues its focus on growth in these high gross margin channels.sales and by a favorable product sales mix.
SG&A Expenses – from continuing operations
In fiscal 2018, SG&A expenses were $51.8$53.7 million, or 45.3% of net sales, compared to $47.2 million or 40.5%37.5% of net sales, in fiscal 2017. The increase2021 compared to $65.9 million, or 38.9% of net sales, in fiscal 2020. SG&A expenses in fiscal 2021 decreased by $12.2 million versus SG&A expenses in fiscal 2020. This decrease is driven primarily by the effects of COVID-19 and various cost containment initiatives undertaken by management in part by higher marketing and operational costs relatedresponse to the pandemic, including lower occupancy costs ($3.5 million) driven by the negotiation of rent abatements with the Company’s strategic focus onlandlords, lower compensation costs ($6.5 million) driven by the promotion and developmentimpact of the Birks brand as well as by higher professional fees incurred in relationtemporary lay-offs, reduced operating hours at retail locations, lower sales commissions due to the Company’s new strategic plan.
Restructuring Charges – from continuing operations
During fiscal 2018, we incurred $0.7 million of restructuring charges associated withdecrease in net sales, and temporary wage reductions at the third phase of our operational restructuring plan launched in fiscal 2015, compared to $0.7 million in fiscal 2017 as part of the second phase of the restructuring plan. In July 2014, we provided to our senior secured lenders and announced an operational restructuring plan to reduce corporate overhead costs, improve profitability and drive efficiency within the organization. The restructuring plan included consolidating most of our corporate administrative workforce from our regional office in Tamarac, Florida to our Montreal corporate head office, as well aswage subsidies ($1.4 million) and rent subsidies ($0.5 million), lower credit cards fees ($0.7 million) due to lower sales volume, lower marketing costs ($1.0 million) and lower general operating costs ($2.5 million) driven by cost containment measures. These year-over-year reductions in SG&A expenses were partially offset by the outsourcing of a portion of our jewelry manufacturing and other corporate head office staff reductions. In February 2018, we began the third phaseimpact of the operational restructuring plan, incurring restructuring chargesrevaluation of approximately $0.7 million, primarily associated with severance, as we eliminated certain head office positions to further increase efficiencydeferred stock units, restricted stock units and to align corporate functions withshare appreciation rights which increased the Company’s strategic direction followingnon-cash stock based compensation expense ($3.6 million) during the Aurum Transaction.year due to the fluctuations in the Company’s stock price during the fiscal year. As a percentage of sales, SG&A expenses in fiscal 2021 have decreased by 140 basis points as compared to fiscal 2020.
Depreciation and Amortization – from continuing operations
Depreciation and amortization expense during fiscal 20182021 was $2.5$5.5 million compared to $2.6$4.8 million during fiscal 2017.2020, due to the minimal increase in capital expenditures incurred by the Company over the last 12 months, partially offset by the accelerated depreciation of leasehold improvements due to modified terms of two lease agreements.
Interest and Other Financing Costs – from continuing operations
Interest and other financing costs in fiscal 20182021 were $3.1$3.0 million compared to $3.4$5.7 million in fiscal 2017,2020, a decrease of $0.3$2.7 million, driven primarily by lower average outstanding working capital debtforeign currency gains of $1.4 million during the periodfiscal 2021 compared to foreign currency losses of $6.6$0.5 million asduring fiscal 2020. The decrease is also associated with a resultdecrease of 130 basis points of the significant debt repayments made by the Company as a resultweighted average interest rate of the Aurum Transaction.senior secured credit facility.
Income Tax Expense – from continuing operations
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of March 31, 2018,27, 2021, the Company had no accrued interest related to uncertain tax positions due to available tax loss carry forwards. The tax years 20112014 through 20182021 remain open to examination in the major tax jurisdictions in which the Company operates. We have continued to record a 100% valuation allowance on the full value of the deferred tax assets generated from our continuing operations during these periods as the criteria for recognition of these assets was not met at March 31, 2018.27, 2021.
Fiscal 20172020 Compared to Fiscal 20162019
The following table sets forth, for fiscal 20172020 and fiscal 2016,2019, the amounts in our consolidated statements of operations:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||
March 25, 2017* | March 26, 2016* | March 28, 2020 | March 30, 2019 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Net sales | $ | 116,436 | $ | 128,651 | $ | 169,420 | $ | 151,049 | ||||||||
Cost of sales | 69,654 | 75,682 | 104,943 | 92,472 | ||||||||||||
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Gross profit | 46,782 | 52,969 | 64,477 | 58,577 | ||||||||||||
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Selling, general and administrative expenses | 47,183 | 48,333 | 65,867 | 67,106 | ||||||||||||
Depreciation and amortization | 4,845 | 3,859 | ||||||||||||||
Impairment of long-lived assets | 309 | 46 | ||||||||||||||
Restructuring charges | 682 | 549 | — | 1,182 | ||||||||||||
Depreciation and amortization | 2,618 | 2,791 | ||||||||||||||
Gain on sale of assets | - | (3,229 | ) | |||||||||||||
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Total operating expenses | 50,483 | 48,444 | 71,021 | 72,193 | ||||||||||||
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Operating income | (3,701 | ) | 4,525 | |||||||||||||
Operating loss | (6,544 | ) | (13,616 | ) | ||||||||||||
Interest and other financing costs | 3,355 | 4,300 | 5,683 | 4,689 | ||||||||||||
Income taxes | - | - | — | — | ||||||||||||
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Net (loss) from continuing operations | (7,056 | ) | 225 | |||||||||||||
Net loss from continuing operations, | (12,227 | ) | (18,305 | ) | ||||||||||||
Discontinued operations: | ||||||||||||||||
(Loss) income from discontinued operations, net of tax | 11,984 | 5,213 | ||||||||||||||
Gain on disposal of discontinued operations | - | - | ||||||||||||||
Loss from discontinued operations, net of tax | (552 | ) | (381 | ) | ||||||||||||
Gain on disposal of discontinued operations, net of tax | — | — | ||||||||||||||
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Net income from discontinued operations | 11,984 | 5,213 | ||||||||||||||
Loss from discontinued operations | (552 | ) | (381 | ) | ||||||||||||
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Net income | $ | 4,928 | $ | 5,438 | ||||||||||||
Net loss | $ | (12,779 | ) | $ | (18,686 | ) | ||||||||||
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* Retrospectively revised (refer to “Significant Transaction” above and to note 18 of our audited consolidated financial statements which are included elsewhere in this Annual Report)
Net Sales – from continuing operations
Fiscal Year Ended | ||||||||||||||||
March 25, 2017 | March 26, 2016 | Fiscal Year Ended | ||||||||||||||
(In thousands) | March 28, 2020 | March 30, 2019 | ||||||||||||||
(In thousands) | ||||||||||||||||
Net sales – Retail | $ | 113,644 | $ | 125,122 | $ | 160,981 | $ | 143,499 | ||||||||
Net sales – Other | 2,792 | 3,529 | 8,439 | 7,550 | ||||||||||||
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Total Net Sales | $ | 116,436 | $ | 128,651 | $ | 169,420 | $ | 151,049 | ||||||||
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Net sales for fiscal 20172020 were $116.4$169.4 million compared to $128.7$151.0 million for fiscal 2016,2019, which is a decreasean increase of $12.3$18.4 million, or 9.5%12.2%, as compared to fiscal 2016.2019. Net retail sales were $11.1$17.7 million lowergreater than in fiscal 2017 versus fiscal 2016 on a constant currency basis after excluding the $0.3 million of lower sales due to the translationlast year primarily driven by all three of the Company’s Canadian sales into U.S. dollars with a relatively weaker Canadian dollar (see “Non-GAAP measures”), primarily driven by a significant decreaseflagship stores operating at full capacity following the major renovations completed at the Toronto and Montreal locations in discretionary spending partially related to difficult economic conditions (particularly in Western Canada)fiscal 2019, as well as by a significant reduction2% increase in luxury spending by certain affluent tourists within our customer base.comparable store sales. The decreaseincrease in Net Sales – Other of $0.7 million related primarily to an increase in sales of our gold exchange program, partially offset by a decrease in corporate sales (division sold in fiscal 2016), partially offset by highere-commerce sales.
Gross Profit – from continuing operations
Fiscal Year Ended | ||||||||||||||||
March 25, 2017 | March 26, 2016 | Fiscal Year Ended | ||||||||||||||
(In thousands) | March 28, 2020 | March 30, 2019 | ||||||||||||||
(In thousands) | ||||||||||||||||
Gross Profit – Retail | $ | 45,784 | $ | 51,428 | $ | 60,500 | $ | 57,310 | ||||||||
Gross Profit – Other | 998 | 1,541 | 3,977 | 1,267 | ||||||||||||
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Total Gross Profit | $ | 46,782 | $ | 52,969 | $ | 64,477 | $ | 58,577 | ||||||||
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Total gross profit for fiscal 20172020 was $46.8$64.5 million or 40.2%38.1% of net sales, as compared to $53.0$58.6 million or 41.2%38.8% of net sales, in fiscal 2016. Excluding $0.2 million2019. The decrease of lower gross profit from the impact of translating the gross profit from Canadian dollars to U.S. dollars with a relatively weaker Canadian dollar, gross profit on a constant currency basis (see“Non-GAAP measures”) decreased by $6.0 million compared to the prior fiscal year period. The reduction of 10070 basis points in gross margin percentage was mainly attributable to a shift in product sales mix towards branded timepieces, partially offset by a reduction in sales promotions in fiscal 2020 compared to fiscal 2019 as a result of the Montreal and the impact of foreign exchange.Toronto flagship locations post-renovations. Gross Profit – Other for fiscal 20172020 was $1.0$4.0 million compared to $1.5$1.3 million for fiscal 2016,2019, which is a decreasean increase of $0.5$2.7 million or 35.2%, as compared to fiscal 2016. This decrease is driven by the declineincreased sales generated by our gold exchange program, and by an increase in corporatewholesale gross margin driven by higher pricing and a favorable product sales (as the corporate sales division sold in fiscal 2016).mix.
SG&A Expenses – from continuing operations
In fiscal 2017, SG&A expenses were $47.2$65.9 million, or 40.5% of net sales, compared to $48.3 million or 37.6%38.9% of net sales, in fiscal 2016. The2020 compared to $67.1 million, or 44.4% of net sales, in fiscal 2019. This decrease wasis driven in part by the efficiencies that resulted from second phaseapplication of the operational restructuring plan that was initiatedcost optimization initiatives to corporate overheads undertaken in fiscal 20152020, including a reduction of compensation costs as wellthe Company further rationalized its organizational structure. Other factors contributing to this decrease include a reduction in marketing costs as the Company temporarily reallocated capital to other strategic priorities in fiscal 2020, partially offset by loweran increase in occupancy expenses resulting from new leases, notably at our Toronto flagship location and by higher direct variable costs driven by lowerincreased sales during thesuch as credit card transaction fees. As a percentage of sales, SG&A expenses in fiscal period.2020 have decreased by 550 basis points as compared to fiscal 2019.
Restructuring Charges – from continuing operations
There were no restructuring costs incurred in fiscal 2020. During fiscal 2017,2019, we incurred $0.7$1.2 million of restructuring charges associated with the second phase of our operational restructuring plan launchedCompany’s right-sizing initiative put in fiscal 2015, comparedplace subsequent to $0.5 million in fiscal 2016the Aurum Transaction, as part of the firstthird phase of the restructuring plan. In July 2014, we provided to our senior secured lenders and announced an operationalCompany’s previous restructuring plan to reduce corporate overhead costs, improve profitability and drive efficiency within the organization.originally put in place in July 2014. The restructuring plan included consolidating most$1.2 million of our corporate administrative workforce from our regional office in Tamarac, Florida to our Montreal corporate head office as well as the outsourcing of a portion of our jewelry manufacturing and other corporate head office staff reductions. In February 2017, we began the
second phase of the operational restructuring plan, incurring restructuring charges of approximately $0.7 millionincurred in fiscal 20172019 are primarily associated with severance costs as wethe Company eliminated certain corporate administrativehead office positions to further increase efficiency.efficiency and to align corporate functions with the Company’s strategic direction following the Aurum Transaction.
Depreciation and Amortization – from continuing operations
Depreciation and amortization expense during fiscal 20172020 was $2.6$4.8 million compared to $2.8$3.9 million during fiscal 2016.2019, driven by amortization on additions to property, plant and equipment.
Impairment of long-lived assets
Non-cash impairment of long-lived assets of $0.3 million in fiscal 2020 are associated to store leases that have a possibility of early lease termination, non-cash impairment of long-lived assets in fiscal 2019 are associated with a retail location due to the projected operating performance of the location.
Interest and Other Financing Costs – from continuing operations
Interest and other financing costs in fiscal 20172020 were $3.4$5.7 million compared to $4.3$4.7 million in fiscal 2016, a decrease2019, an increase of $0.9$1.0 million, driven in part by lowerthe impact of the full fiscal year of interest costs in relation the Company’s $12.5 million Term Loan that was signed in June 2018 and by an increase in the Company’s average long-termworking capital debt outstandingof approximately $11.2 million from $44.8 million during fiscal 2019 to $56.0 million during fiscal 2020.
Income Tax Expense – from continuing operations
The Company recognizes interest and penalties related to uncertain tax positions in fiscal 2017 as comparedincome tax expense. As of March 28, 2020, the Company had no accrued interest related to fiscal 2016uncertain tax positions due to available tax loss carry forwards. The tax years 2013 through 2020 remain open to examination in the termination on November 1, 2016 of an obligation under capital lease of approximately $8.7 million (at November 1, 2016) pursuantmajor tax jurisdictions in which the Company operates. We have continued to record a sale-leaseback transaction100% valuation allowance on the former Montreal head-office building.full value of the deferred tax assets generated from our continuing operations during these periods as the criteria for recognition of these assets was not met at March 28, 2020.
NON-GAAP MEASURES
The Company reports financial information in accordance with U.SU.S. Generally Accepted Accounting Principles (“U.SU.S. GAAP”). The Company’s performance is monitored and evaluated using various sales and earnings measures that are adjusted to include or exclude amounts from the most directly comparable GAAP measure(“non-GAAP measures”). The Company presents suchnon-GAAP measures in reporting its financial results to investors and other external stakeholders to provide them with useful complimentary information which will allow them to evaluate the Company’s operating results using the same financial measures and metrics used by the Company in evaluating performance. The Company does not, nor does it suggest that investors and other external stakeholders should, considernon-GAAP measures in isolation from, or as a substitute for, financial information prepared in accordance with U.SU.S. GAAP. Thesenon-GAAP measures may not be comparable to similarly-titled measures presented by other companies.
Constant currency basis
The Company evaluates its sales performance using In addition to our results determined in accordance with U.S. GAAP, we use non-GAAP measures which eliminates the foreign exchange effects of translatingincluding: “EBITDA”, “adjusted operating expenses”, “adjusted operating loss” and “adjusted EBITDA”.
EBITDA
“EBITDA” is defined as net sales, comparable store salesincome (loss) from continuing operations before interest expense and gross profit made in Canadian dollars to U.S dollars (constant currency basis or constant exchange rate basis). Net sales, comparable store sales, gross profitother financing costs, income taxes expense (recovery) and expenses on a constant exchange rate basis are calculated by taking the current period’s sales, gross profitdepreciation and expenses in local currency and translating them into U.S dollars using the prior period’s foreign exchange rates. The Company believes that such measures provide useful supplemental information with which to assess the Company’s performance relative to the corresponding period in the prior fiscal year. The following tables reconcile the net sales, comparable store sales and gross profit increases (decreases) from GAAP tonon-GAAP versus the previous fiscal year:amortization.
Constant Exchange Rate Basis | Fiscal 2018 vs. Fiscal 2017 Change | Fiscal 2017 vs. Fiscal 2016 Change | ||||||||||||||||||||||
GAAP | Translation Effect | Constant- Exchange Rate Basis | GAAP | Translation Effect | Constant- Exchange Rate Basis | |||||||||||||||||||
Net Sales – from continuing operations (in $000’s) | ||||||||||||||||||||||||
Net sales - Retail | (3,419 | ) | 2,455 | (5,874 | ) | (11,477 | ) | (349 | ) | (11,128 | ) | |||||||||||||
Net sales - Other | 1,361 | 183 | 1,178 | (737 | ) | (78 | ) | (659 | ) | |||||||||||||||
Total Net Sales | (2,058 | ) | 2,638 | (4,696 | ) | (12,214 | ) | (427 | ) | (11,787 | ) | |||||||||||||
Gross Profit from continuing operations (in $ 000’s) | ||||||||||||||||||||||||
Total Gross Profit | (3,228 | ) | 2,106 | (5,334 | ) | (6,187 | ) | (208 | ) | (5,979 | ) |
Comparable store sales decrease – from continuing operations (in %) Comparable store sales -2% Constant- Exchange Rate Comparable store sales decrease – from continuing operations (in %) Comparable store sales -8% Constant Exchange Rate Basis
Reconciliation Fiscal 2018 vs. Fiscal 2017 Change GAAP Translation
Effect Constant-
Exchange Rate
Basis 2 % -4 % Fiscal 2017 vs. Fiscal 2016 Change GAAP Translation
Effect
Basis 0 % -8 %
Adjusted operating expenses, and adjusted operating incomeloss & adjusted EBITDA
The Company evaluates its operating earnings performance using financial measures which exclude expenses associated with operational restructuring plans and impairment losses, as well as anon-recurring gain on disposal of assets.losses. The Company believes that such measures provide useful supplemental information with which to assess the Company’s results relative to the corresponding period in the prior year and can result in a more meaningful comparison of the Company’s performance between the periods presented. The table below provides a reconciliation of thenon-GAAP measures presented to the most directly comparable financial measures calculated with GAAP.
Reconciliation ofnon-GAAP measures Restructuring costs (a) One- time Total operating expenses – from continuing operations as a % of net sales from continuing operations as a % of net sales from continuing operations Reconciliation ofnon-GAAP measures One- time Total operating expenses – from continuing operations as a % of net sales from continuing operations Operating loss – from continuing operations as a % of net sales from continuing operations One- time Total operating expenses – from continuing operations as a % of net sales from continuing operations Operating loss – from continuing operations as a % of net sales from continuing operations Fiscal year ended March 31, 2018 ($‘000)
GAAP Impairment
of long lived
assets (b)
gain (c) Non-GAAP 57,216 (688) (2,156) - 54,372 50.0% 47.5% Operating loss – from continuing operations (13,662) 688 2,156 - (10,818) (11.9)% (9.5)% Fiscal year ended March 25, 2017 ($‘000)
GAAP Restructuring
costs (a) Impairment
of long lived
assets (b)
gain (c) Non-GAAP 50,483 (682) - 49,801 43.4% 42.8% (3,701) 682 - (3,019) (3.2)% (2.6)% Reconciliation ofnon-GAAP measures Fiscal year ended March 26, 2016 ($‘000)
GAAP Restructuring
costs (a) Impairment
of long lived
assets (b)
gain (c) Non-GAAP 48,444 (549) - 3,229 51,124 37.7% 39.7% 4,525 549 - (3,229) 1,845 3.5% 1.4%
Total Adjusted Operating Expenses |
| |||||||||||||||||||
For the fiscal year ended | ||||||||||||||||||||
($000’s) | March 27, 2021 | March 28, 2020 | March 30, 2019 | March 31, 2018 | March 25, 2017 | |||||||||||||||
Total operating expenses (GAAP measure) | 59,171 | 71,021 | 72,193 | 73,700 | 65,924 | |||||||||||||||
as a % of net sales | 41.4 | % | 41.9 | % | 47.8 | % | 50.3 | % | 43.1 | % | ||||||||||
Remove the impact of: | ||||||||||||||||||||
Restructuring costs (a) | — | — | (1,182 | ) | (894 | ) | (897 | ) | ||||||||||||
Impairment of long-lived assets (b) | — | (309 | ) | (46 | ) | (2,788 | ) | — | ||||||||||||
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Total adjusted operating expenses (non-GAAP measure) | $ | 59,171 | $ | 70,712 | $ | 70,965 | $ | 70,018 | $ | 65,027 | ||||||||||
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as a % of net sales | 41.4 | % | 41.7 | % | 47.0 | % | 47.8 | % | 42.5 | % |
Adjusted operating income (loss) |
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For the fiscal year ended | ||||||||||||||||||||
($000’s) | March 27, 2021 | March 28, 2020 | March 30, 2019 | March 31, 2018 | March 25, 2017 | |||||||||||||||
Operating income (loss) (GAAP measure) | (2,821 | ) | (6,544 | ) | (13,616 | ) | (18,007 | ) | (4,392 | ) | ||||||||||
as a % of net sales | -2.0 | % | -3.9 | % | -9.0 | % | -12.3 | % | -2.9 | % | ||||||||||
Add the impact of: | ||||||||||||||||||||
Restructuring costs (a) | — | — | 1,182 | 894 | 897 | |||||||||||||||
Impairment of long-lived assets (b) | — | 309 | 46 | 2,788 | — | |||||||||||||||
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Adjusted operating income (loss) (non-GAAP measure) | $ | (2,821 | ) | $ | (6,235 | ) | $ | (12,388 | ) | $ | (14,325 | ) | $ | (3,495 | ) | |||||
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as a % of net sales | -2.0 | % | -3.7 | % | -8.2 | % | -9.8 | % | -2.3 | % |
EBITDA & Adjusted EBITDA |
| |||||||||||||||||||
For the fiscal year ended | ||||||||||||||||||||
($000’s) | March 27, 2021 | March 28, 2020 | March 30, 2019 | March 31, 2018 | March 25, 2017 | |||||||||||||||
Net income (loss) from continuing operations (GAAP measure | (5,838 | ) | (12,227 | ) | (18,305 | ) | (21,995 | ) | (8,859 | ) | ||||||||||
as a % of net sales | -4.1 | % | -7.2 | % | -12.1 | % | -15.0 | % | -5.8 | % | ||||||||||
Add the impact of: | ||||||||||||||||||||
Interest expense and other financing costs | 3,017 | 5,683 | 4,689 | 3,988 | 4,467 | |||||||||||||||
Income taxes expense (recovery) | — | — | — | — | — | |||||||||||||||
Depreciation and amortization | 5,458 | 4,845 | 3,859 | 3,264 | 3,428 | |||||||||||||||
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EBITDA (non-GAAP measure) | $ | 2,637 | $ | (1,699 | ) | $ | (9,757 | ) | $ | (14,743 | ) | $ | (964 | ) | ||||||
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as a % of net sales | 1.8 | % | -1.0 | % | -6.5 | % | -10.1 | % | -0.6 | % | ||||||||||
Add the impact of: | ||||||||||||||||||||
Restructuring costs (a) | — | — | 1,182 | 894 | 897 | |||||||||||||||
Impairment of long-lived assets (b) | — | 309 | 45 | 2,788 | — | |||||||||||||||
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Adjusted EBITDA (non-GAAP measure) | $ | 2,637 | $ | (1,390 | ) | $ | (8,530 | ) | $ | (11,061 | ) | $ | (67 | ) | ||||||
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as a % of net sales | 1.8 | % | -0.8 | % | -5.6 | % | -7.5 | % | 0.0 | % |
(a) | Expenses associated with the Company’s operational restructuring plan |
(b) | Non-cash impairment of long-lived assets in fiscal 2020 related to leasehold improvements that are associated |
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Liquidity and Capital Resources
OurThe Company’s ability to fund ourits operations and meet ourits cash flow requirements in order to fund our operations is dependent upon ourits ability to maintain positive excess availability under the Company’s NewCredit Facility. As of March 27, 2021, bank indebtedness consisted solely of amounts owing under the Company’s Credit Facility, which ashad an outstanding balance of March 31, 2018, had a balance owing$53.4 million ($53.7 million net of approximately $28.6 million. The New Credit Facility$0.3 million of deferred financing costs) on its maximum $85.0 million credit facility, which is used to finance working capital financeand capital expenditures, provide liquidity to fund ourthe Company’s day-to-day operations and for other general corporate purposes. The terms of the New Credit Facility require us to maintain positive excess availability at all times.
On October 23, 2017, in connection with the closing of the Aurum Transaction, the Company entered into a new senior secured credit facility with Wells Fargo Canada Corporation for a maximum amount of CAD$85.0 million (US$65.9 million) (the “New Credit Facility”). The New Credit Facility, which matures in October 2022, replaced the Company’s prior $110.0 million revolver credit facility and its prior senior secured $31.0 million term loan facility which were repaid in full as a result of the Company’s divestiture of Mayors. The New Credit Facility also provides the Company with an option to increase the total commitments thereunder by up to CAD$13.0 million (US$10.1 million). The Company will only have the ability to exercise this accordion option if it has the required borrowing capacity at such time. The New Credit Facility bears interest at a rate of CDOR plus a spread ranging from 1.5% - 3.0% depending on the Company’s excess availability levels. Under the New Credit Facility, the Company is not required to comply with a minimum adjusted EBITDA financial covenant. The sole financial covenant which the Company is required to adhere to under both its Credit Facility and its Term Loan is to maintain minimum excess availability of not less than CAD$8.5$8.5 million (US$6.6 million) at all times, except that the Company shall not be in breach of this covenant if excess availability falls below CAD$8.5$8.5 million (US$6.6 million) for not more than two consecutive business days once during any fiscal month.
On June 29, 2018, In the Company secured a CAD$12.5 million (US$ 9.7 million) senior secured term loan (the “New Term Loan”) with Crystal Financial LLC (“Crystal”). The New Term Loan, which matures in October 2022, is subordinated in lien priority to the New Credit Facility and bears interest at a rate of CDOR plus 8.25%. Under the New Term Loan, the Company will be required to adhere to similar financial covenants as under the New Credit Facility (maintain minimum excess availability of not less than CAD$8.5 million (US$6.6 million) at all times, exceptevent that the Company shall not be in breach of this covenant if excess availability falls below CAD$8.5 million (US$6.6 million) for not more than two consecutive business days once during any fiscal month). In addition, the New Term Loan includes seasonal availability blocks imposed from December 20th to January 20thminimum requirement, this would be considered an event of each year of CAD$9.5 million (US$7.4 million) and from January 21st to February 20th of each year of CAD$4.5 million (US$3.5 million). The long term senior secured term loan is required to be repaid upon maturity. The New Term Loan does not requiredefault under the Company to comply with a minimum adjusted EBITDA financial covenant.
The Company’s borrowing capacity under both the New Credit Facility and the New Term Loan, is based uponthat could result in the value ofoutstanding balances borrowed under the Company’s inventory and accounts receivable, which is periodically assessed by the lenders, and based upon these reviews the Company’s borrowing capacity could be significantly increased or decreased.
The Company’s New Credit Facility and NewTerm Loan becoming due immediately, which would also result in cross defaults on the Company’s other borrowings. Similarly, both the Company’s Credit Facility and Term Loan are subject to cross default provisions with all other loans pursuant to which if the Company is in default of any other loan, the Company will immediately be in default of both the New Credit Facility and the New Term Loan. The Company met its excess availability requirements throughout fiscal 2021. In addition, the eventCompany expects to have excess availability of at least $8.5 million for at least the next twelve months from the date of issuance of these financial statements.
On October 23, 2017, the Company entered into a Credit Facility with Wells Fargo Canada Corporation for a maximum amount of $85.0 million. The Credit Facility, which matures in October 2022, also provides the Company with an option to increase the total commitments thereunder by up to $13.0 million. The Company will only have the ability to exercise this accordion option if it has the required borrowing capacity at such time. The Credit Facility bears interest at a rate of CDOR plus a spread ranging from 1.5% - 3.0% depending on the Company’s excess availability levels. Under the Credit Facility, the sole financial covenant which the Company is required to adhere to is to maintain minimum excess availability of not less than $8.5 million at all times, except that the Company shall not be in breach of this covenant if excess availability falls below CAD$8.5$8.5 million (US$6.6 million) for not more than two consecutive business days once during any fiscal month, this would be considered an event of default undermonth. The Company’s excess availability was above $8.5 million throughout fiscal 2021.
On June 29, 2018, the NewCompany secured a $12.5 million Term Loan with Crystal Financial LLC (“Crystal”) now known as SLR Credit Solutions (“SLR”). The Term Loan, which matures in October 2022, is subordinated in lien priority to the Credit Facility and Newbears interest at a rate of CDOR plus 8.25%. Under the Term Loan, that provides the lenders the rightCompany is required to require the outstanding balances borrowedadhere to a similar financial covenant as under the Credit Facility (maintain minimum excess availability of not less than $8.5 million at all times, except that the Company shall not be in breach of this covenant if excess availability falls below $8.5 million for not more than two consecutive business days once during any fiscal month). In addition, the Term Loan includes seasonal availability blocks imposed from December 20th to January 20th of each year of $9.5 million and from January 21st to February 20th of each year of $4.5 million. The Term Loan is required to be repaid upon maturity.
The Company’s Newborrowing capacity under both the Credit Facility and Newthe Term Loan to become due immediately, which would result in cross defaults onis based upon the value of the Company’s other borrowings. The Company expects to have excess availability of at least CAD$8.5 million (US$6.6 million) for at leastinventory and accounts receivable, which is periodically assessed by its lenders, and based upon these reviews the next twelve months.Company’s borrowing capacity could be significantly increased or decreased.
The New Credit Facility and New Term Loan also contain limitations on the Company’s ability to pay dividends, more specifically, among other limitations, the Company can pay dividends only at certain excess borrowing capacity thresholds. The Company is required to either i) maintain excess availability of at least 40% of
the borrowing base in the month preceding payment or ii) maintain excess availably of at least 25% of the borrowing base and maintain a fixed charge coverage ratio of at least 1.10 to 1.00. Other than these financial covenants related to paying dividends, the terms of the New Credit Facility and New Term Loan provide that no financial covenants are required to be met other than already described.
The Company’s ability to make scheduled payments of principal, or to pay the interest, or to fund planned capital expenditures will also depend on its ability to maintain adequate levels of available borrowing, adhere to all financial covenants with its lenders, obtain favorable payment terms from suppliers and its future performance, which may be subject to general economic, financial, competitive, legislative and regulatory factors, as well as other events that are beyond the Company’s control. Such events include the potential impacts to our ability to generate cash from operations as a result of the on-going COVID-19 pandemic. See “Risk Factors” for additional information.
The Company continues to be actively engaged in identifying alternative sources of financing that include raising additional funds through public or private equity, the disposal of assets, and debt financing, including funding from government sources. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that could restrict the Company’s operations. Financing may be unavailable in amounts or on terms acceptable to the Company if at all, which may have a material adverse impact on its business, including its ability to continue as a going concern.
The Company’s lenders under its New Credit Facility and its New Term Loan may impose, at any time, discretionary reserves, which would lower the level of borrowing availability under the Company’s credit facilities (customary for asset-based loans), at their reasonable discretion, to: i) ensure that the Company maintain adequate liquidity for the operation of its business, ii) cover any deterioration in the amount of value of the collateral, and iii) reflect impediments to the lenders to realize upon the collateral. There is no limit to the amount of discretionary reserves that the Company’s lenders may impose at their reasonable discretion. No discretionary reserves werehave been imposed during fiscal 2018, fiscalsince the inception of the Credit Facility and the Term Loan on October 23, 2017 and fiscal 2016 by the Company’s current or former lenders.June 29, 2018, respectively.
Borrowings under our credit facilityCredit Facility for the periods indicated in the table below were as follows:
Fiscal Year Ended | ||||||||
March 31, 2018(1) | March 25, 2017(2) | |||||||
(In thousands) | ||||||||
Credit facility availability | $ | 44,101 | $ | 85,026 | ||||
Amount borrowed at year end – continuing operations | $ | 28,640 | $ | 44,840 | ||||
Amount borrowed at year end – discontinued operations | $ | - | $ | 25,602 | ||||
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Excess borrowing capacity at year end (before minimum threshold) | $ | 15,461 | $ | 14,584 | ||||
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Average outstanding balance during the year – continuing operations | $ | 35,187 | $ | 41,751 | ||||
Average excess borrowing capacity during the year – continuing operations | $ | 14,368 | $ | 13,683 | ||||
Maximum borrowing outstanding during the year – continuing operations | $ | 48,653 | $ | 50,250 | ||||
Minimum excess borrowing capacity during the year – continuing operations(3) | $ | 2,594 | $ | 6,174 | ||||
Weighted average interest rate for year | 3.3% | 3.2% |
* Retrospectively revised (refer to “Significant Transaction” above and to note 18 of our audited consolidated financial statements which are included elsewhere in this Annual Report)
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Fiscal Year Ended | ||||||||
March 27, 2021 | March 28, 2020 | |||||||
(In thousands) | ||||||||
Credit facility availability | $ | 72,218 | $ | 70,916 | ||||
Amount borrowed at year end | $ | 53,387 | $ | 58,035 | ||||
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Excess borrowing capacity at year end (before minimum threshold) | $ | 18,831 | $ | 12,881 | ||||
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Average outstanding balance during the | $ | 56,807 | $ | 56,001 | ||||
Average excess borrowing capacity during the year | $ | 16,393 | $ | 14,144 | ||||
Maximum borrowing outstanding during the year | $ | 64,121 | $ | 64,702 | ||||
Minimum excess borrowing capacity during the year | $ | 9,637 | $ | 9,648 | ||||
Weighted average interest rate for year | 2.9 | % | 4.2 | % |
Investissement Québec
TheOn June 5, 2019, the Company hasrepaid the outstanding balances on its prior term loans from Investissement Québec, namely its $5 million term loan ($0.6 million outstanding in the aggregate amount of $1.8 million (CAD$2.4 million)balance as at March 31, 2018 with Investissement Québec.30, 2019) and $2 million term loan ($0.3 million outstanding balance as at March 30, 2019).
In November 2015,On July 8, 2020, the Company amended the monthly capital requirements amounts of allsecured a new six-year term loansloan with Investissement Québec in orderthe amount of $10.0 million, as amended. The secured term loan was used to reduce its short-termfund the working capital requirements. The impactneeds of the amendment on the first twelve months following the effective dateCompany. The loan bears interest at a rate of the amendment translated to a reduction of CAD$2.0 million (approximately $1.6 million3.14% per annum and is repayable in U.S. dollars) of the monthly capital requirements. This amendment was agreed to by the senior secured lenders.
As of March 31, 2018, the Company had the following loans with Investissement Québec:
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60 equal payments beginning in July 2021. The term loansloan with Investissement Québec requirerequires the Company on an annual basis to have a working capital ratio (defined as current assets divided by current liabilities excluding the current portion of operating lease liabilities) of at least 1.15. The1.01. As at March 27, 2021, the Company was in compliancehad a working capital ratio of 1.03. On June 2, 2021, the Company obtained a waiver from Investissement Québec with respect to the requirement to meet the working capital ratio as ofat March 31, 2018.26, 2022.
Capital Leases and Other Financing
As of March 31, 2018, we27, 2021, the Company had a balance of $1.9 million (U.S. $1.5 millionmillion) outstanding from an original $6.7 million (U.S. $5.0 millionmillion) cash advance from one of our controlling shareholder, Montrovest.shareholders, Montel. This advance is payable upon demand by MontrovestMontel once conditions stipulated in our senior credit facilitiesCredit Facility permit such a payment. Commensurate withThe conditions that are required to be met are the amendment of our senior credit facilities,same as those that are required to be met for the Company to pay dividends (outlined in June 2011, we amended the terms of the $5.0 million cashabove section). This advance reducing thebears an annual interest rate from 16%, net of any withholding taxes, representing an effective interest of 17.8% to 11%, net of any withholding taxes, representing an effective interest rate of approximately 12.2%. In addition, the amended terms (i) eliminated the 7% fee required to be paid to Montrovest upon conversion
As of the advance into a convertible debenture or Class A voting shares, (ii) eliminated the convertibility of the cash advance into a convertible debenture or Class A voting share in the event of a private placement and (iii) required aone-time payment of a closing fee of $75,000. In August 2012, a partial repayment of $3.5 million was made on these cash advances as a result of the proceeds from a stock rights offering that we undertook in 2012.
On July 28, 2017,March 27, 2021, the Company receivedhad a balance of $1.6 million (U.S. $1.25 million) outstanding from an original $3.4 million (U.S. $2.5 millionmillion) loan from Montrovest.Montel. The loan bears interest at an annual rate of 11%, net of withholding taxes, representing an effective interest rate of 12.2%. In May 2019, Montel granted the Company a one-year extension of the term of the outstanding balance of $1.7 million (U.S. $1.25 million) which was scheduled to be fully repaid in July 2020. In December 2019, the Company obtained a new one-year moratorium on principal payments and is due and payableas such the loan was scheduled to be fully repaid in two equal payments of $1.25 million in each of July 2018 and July 2019.
TheDecember 2020. On June 30, 2020, the Company entered into a financing agreement effective May 11, 2017 withobtained a new lender formoratorium on the principal repayment, and as such the loan will become due on the earlier of August 31, 2021 or 10 days following a credit facilityliquidity event, subject to the approval by its senior secured lenders and the Company’s Board of up to $4.75 million of lease financing relating to certain equipment consisting of furniture, fixtures, and computer systems. During fiscal 2018, the Company borrowed approximately $2.7 million against this facility. The $2.7 million borrowed was repaid in full by the Company on March 31, 2018.Directors.
Cash Flows from Operating, Investing and Financing Activities – from continuing operations
The following table summarizes cash flows from operating, investing and financing activities:
(in thousands) | Fiscal 2018 | Fiscal 2017 | Fiscal 2016 | Fiscal 2021 | Fiscal 2020* | Fiscal 2019 | ||||||||||||||||||
Net cash provided by (used in): | ||||||||||||||||||||||||
Operating activities | $ | (15,030) | $ | (3,349) | $ | 1,395 | $ | (1,723 | ) | $ | (3,225 | ) | $ | (4,340 | ) | |||||||||
Investing activities | (6,777) | (4,390) | (745) | (2,992 | ) | (6,432 | ) | (13,611 | ) | |||||||||||||||
Financing activities | (17,206) | 7,342 | (489) | 5,957 | 9,595 | 18,506 | ||||||||||||||||||
Net cash provided by discontinued operations: | 38,123 | - | - | — | (552 | ) | (381 | ) | ||||||||||||||||
Effect of changes in exchange rate on cash and cash equivalents | (275) | (3) | (173) | |||||||||||||||||||||
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Net increase (decrease) in cash and cash equivalents | $ | (1,165) | $ | (400) | $ | (12) | $ | 1,242 | $ | (614 | ) | $ | 174 | |||||||||||
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Net cash used in operating activities from continuing operations was $15.0$1.7 million in fiscal 20182021 as compared to $3.3$3.2 million in fiscal 2017.2020. The $11.7$1.5 million decreaseincrease in cash flows related to operating activities from continuing operations was primarily the result of a $9.7$6.4 million increasedecrease in operatingnet loss from continuing operations in fiscal 20182021 versus fiscal 2017,2020, a $2.4$0.6 million increase in the level of prepaid expenses growth duringdepreciation and amortization in fiscal 20182021 as compared to fiscal 2017, as well as a $1.7 million2020, and an increase in the levelleasehold inducements received of $0.5 million in accounts receivable growth during fiscal 20182021 when compared to fiscal 2017,2020, partially offset by a $2.1$0.3 millionnon-cash decrease in impairment of long-lived assets in fiscal 2018.2021 as compared to fiscal 2020, a $0.3 million decrease in other operating activities in fiscal 2021 as compared to fiscal 2020, a $3.1 million decrease in the level of amortization of operating lease right of use assets in fiscal 2021 versus fiscal 2020, a $0.5 million decrease in lease modifications during fiscal 2021, and an increase of $1.8 million of cash used by working capital in fiscal 2021 versus fiscal 2020. The $1.8 million increase in cash used by working capital was due to a decrease in accounts payable of $10.6 million in fiscal 2021 as compared to an increase of accounts payable of $18.7 million in fiscal 2020 driven by the accelerated payments to vendors upon the re-opening of the Company’s store network in the second quarter of fiscal 2021, and a $0.2 million net increase in prepaid expenses in fiscal 2021 when compared to fiscal 2020, partially offset by a net increase in accrued liabilities and other long-term liabilities of $9.2 million in fiscal 2021 when compared to fiscal 2020 primarily due to the impacts of impact of the revaluation of certain deferred stock units, restricted stock units and share appreciation rights as well as deferred rent, a decrease of inventory of $4.1 million in fiscal 2021 versus an increase in inventory of $10.4 million in fiscal 2020 due to inventory management initiatives, and an increase in accounts receivable and long-term accounts receivable of $1.3 million in fiscal 2021 versus an increase of $5.4 million in fiscal 2020 driven by the lower sales performance in fiscal 2021 as a result of COVID-19.
Net cash used in operating activities from continuing operations was $3.3$3.2 million in fiscal 20172020 as compared to net cash provided by operating activities from continuing operations of $1.4$4.3 million in fiscal 2016.2019. The $4.7$1.1 million decreaseincrease in cash flows related to operating activities from continuing operations was primarily the result of a $7.3$6.1 million decreaseimprovement in net incomeloss from continuing operations in fiscal 20172020 versus fiscal 2016, as well as an2019, a $1.0 million increase in the level of accounts receivable growth of $1.0depreciation and amortization in fiscal 2020 as compared to fiscal 2019, a $2.3 million during fiscal 2017 versus fiscal 2016, and an increase in the level of inventory growthamortization of $2.2operating lease right of use assets in fiscal 2020 versus fiscal 2019, an increase in leasehold inducement received of $0.6 million in fiscal 2017 versus2020, compared to nil in fiscal 2016,2019. and a $0.1 million net increase in other adjustments to operating activities, partially offset by a $3.2$9.0 million non-cash gain on sale of assetscash used by working capital. The $9.0 million of cash used by working capital was due to an increase in fiscal 2016accounts receivable and long-term accounts receivable of $6.8 million driven by increased sales as well as by an increase in the levelpenetration of accounts payablethe in-house credit program, an increase in inventory of $3.6 million driven by increased sales as well as by an increase in inventory purchased with extended payment terms, an increase in the net change of prepaids and accrued liabilities growthother assets of $2.7 million primarily due to the decrease in prepaid inventories in fiscal 2017 versus2019 as compared to fiscal 2016.2020, partially offset by a net increase in accounts payable, accrued liabilities and other long-term liabilities of $4.1 million primarily driven by the increase in inventory.
During fiscal 2018,2021, net cash used in investing activities from continuing operations was $6.8$3.0 million compared to $4.4$6.4 million used during fiscal 2017.2020. The $2.4$3.4 million increasedecrease in net cash used in investing activities from continuing operations was primarily attributable to an increasea decrease in capital expenditures and additionsin fiscal 2021 compared to intangibles assets over fiscal 2017.2020.
During fiscal 2017,2020, net cash used in investing activities from continuing operations was $4.4$6.4 million compared to $0.7$13.6 million used during fiscal 2016.2019. The $3.7$7.2 million increasedecrease in net cash used in investing activities from continuing operations was primarily attributable to net proceeds of $4.1 million received related to the disposal of corporate sales division assets in fiscal 2016, partially offset by a decrease in capital expenditures over the prior fiscal year of $0.4 million.
Net cash used in financing activities from continuing operations was $17.2 million in fiscal 2018, as compared to $7.3 million of cash flows provided by financing activities from continuing operations during fiscal 2017. The $24.5 million decrease in cash flows related to financing activities from continuing operations was primarily due to a decrease in bank indebtedness of $16.2 million in fiscal 2018 as compared to an increase in bank indebtedness of $10.4 million in fiscal 2017, partially offset by a decrease in net repayments of long-term debt of $2.2 million in fiscal 2018 as2020 compared to fiscal 2017.2019 and lower additions to intangible assets related to our ERP project in fiscal 2020 compared to fiscal 2019.
Net cash provided by financing activities from continuing operations was $7.3$6.0 million in fiscal 2017,2021, as compared to $0.5$9.6 million used during fiscal 2016.2020. The $7.8$3.6 million decrease in cash flows from financing activities was primarily due to a $4.8 million decrease in bank indebtedness in fiscal 2021 compared to a $10.8 million increase in cash flowsbank indebtedness in fiscal 2020, partially offset by an increase in long-term debt, related to the loan from Investissement Québec, of $10.0 million in fiscal 2021 as compared to nil in fiscal 2020, cash inflows associated to exercised stock options and warrants of $0.9 million in fiscal 2021 as compared to nil in fiscal 2020, lower long-term debt repayments of $0.8 million in fiscal 2021, and a decrease in the repayment of obligations under finance leases of $0.1 million in fiscal 2021 as compared to fiscal 2020.
Net cash provided by financing activities from continuing operations was primarily due an increase in bank indebtedness$9.6 million in fiscal 2017 of $8.4 million2020, as compared to $18.5 million during fiscal 2016,2019. The $8.9 million decrease in cash flows from financing activities was primarily due to a decrease in cash inflows from entering into the Term Loan of $12.5 million in June 2018, partially offset by an increase in net repaymentsbank indebtedness of long-term debt of $0.8$0.7 million in fiscal 20172020 as compared to fiscal 2016.2019, lower long-term debt repayments of $2.3 million in fiscal 2020 as compared to fiscal 2019, and a decrease in the payment of loan origination fees of $0.6 million in fiscal 2020 as compared to fiscal 2019.
Net cash provided byused in discontinued operations amounted to $38.1nil in fiscal 2021, $0.6 million in fiscal 20182020 and represents the excess proceeds received$0.4 million in fiscal 2019 as a result of certain Mayors’ related costs that the Aurum Transaction,Company incurred in fiscal 2020, compared to transaction related costs, net of recovery of expenses received as part of the repayment of Mayors’ outstanding term and working capital debt and transaction related costs.transition service agreement with Aurum in fiscal 2019.
* | In fiscal 2021, the Company corrected an immaterial error in the comparative 2020 statement of cash flows by presenting the cash received for leasehold inducements as cash flows provided by operating activities, rather than the previous classification of cash flows provided by financing activities. The Company assessed the materiality of this error in accordance with the SEC’s Staff Accounting Bulletin No. 99, Materiality and, based on an analysis of quantitative and qualitative factors, determined that the correction was not material to its consolidated financial statements. |
The following table details capital expenditures in fiscal 2018, 2017,2021, 2020, and 2016:2019:
Fiscal Year Ended | ||||||||||||
March 31, 2018 | March 25, 2017* | March 26, 2016* | ||||||||||
(In thousands) | ||||||||||||
New stores and renovations | $ | 3,774 | $ | 1,583 | $ | 2,792 | ||||||
Electronic equipment, computer hardware and software | 2,717 | 2,312 | 1,044 | |||||||||
Furniture and fixtures | 1,560 | 504 | 1,571 | |||||||||
Manufacturing equipment | - | 4 | 6 | |||||||||
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Total capital expenditures(1) | $ | 8,051 | $ | 4,403 | $ | 5,413 | ||||||
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* Retrospectively revised (refer to “Significant Transaction” above and to note 18 of our audited consolidated financial statements which are included elsewhere in this Annual Report)
Fiscal Year Ended | ||||||||||||
March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||
(In thousands) | ||||||||||||
Leasehold improvements | $ | 2,486 | $ | 1,518 | $ | 6,593 | ||||||
Electronic equipment, computer hardware and software | 991 | 1,165 | 1,774 | |||||||||
Furniture and fixtures and equipment | 242 | 73 | 6,166 | |||||||||
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Total capital expenditures (1) | $ | 3,719 | $ | 2,756 | $ | 14,533 | ||||||
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(1) | Includes capital expenditures financed by finance leases (referred to as capital leases |
CapitalIn the last three fiscal years, we invested a total of approximately $21.0 million in capital expenditures for fiscal 2019 are projected to be approximately $11.2 million and are expected to be used primarily for store remodeling and store relocations associated with lease renewals,the remodeling of our existing store network including the completion of major transformative renovations at our three flagship locations in Montreal (completed in June 2018), Vancouver (completed in February 2019) and Toronto (completed in March 2019) as well the remodeling of two stores in Calgary (expected re-opening in June 2021), the relocation of a store within the same mall in Montreal (completed in November 2020), the opening of Market Mall in Calgary (completed in November 2019), the remodeling of the Willowdale location in Toronto (completed in September of 2019) the opening of our Graff and Patek Philippe boutiques in Vancouver (completed in December 2018) and an on-going enterprise resource planning (“ERP”) implementation.
Prior to the COVID-19 pandemic and forced store closures beginning in March 2020, the Company experienced a return to normal selling conditions during fiscal 2020 as the implementationCompany transitioned out of a very capital-intensive period of remodeling our new ERP system. Theretail network including our flagship locations. Fiscal 2021 provided many uncertainties and challenges that resulted in delayed and modified capital projects. We currently expect to invest a significantly lower amount ofin capital expenditures in fiscal 2022 as we focus solely on operations and on delivering a return on our strategic investment spending during the period from fiscal 2017 to fiscal 2019. In fiscal 2022, the Company expects to spend approximately $2.7 million in capital expenditures, primarily related to store remodels. We expect to finance these capital expenditures from operating cash flows, and existing financing arrangements including tenant allowances from our landlords. Such planned capital expenditures for fiscal 2019 is higher than the amount spent in
fiscal 2018. Approximately 17% of the company’s store leases are renewable within the next two years and we are currently in discussions with a number of landlords with respect to renewing at existing locations and/or moving to new locations, and such lease renewals or new leases may require capital expenditures. The capital expenditures related to retail store locations are estimated tocould be approximately $13.2 million over the next two years to remodel, relocate or open new stores. Of the $13.2 million, we estimate that $9.4 million will be spent in fiscal 2019 leaving the balance to fiscal 2020. The availability of financing will impact our ability to renew leases or enter into new ones, which can in turn, impact the number of retail locations we operate and the level of sales we generatedelayed in the future.event of prolonged COVID-19 impacts on the Company’s operations and financial condition.
Maintenance of sufficient availability of funding through an adequate amount of committed financing is necessary for us to fund ourday-to-day operations. Our ability to make scheduled payments of principal, or to pay the interest or additional interest, if any, or to fund planned capital expenditures and store operations will depend on our ability to maintain adequate levels of available borrowing, obtain favorable payment terms from suppliers and our future performance, which to a certain extent, ismay be subject to general economic, financial, competitive, legislative and regulatory factors, as well as other events that are beyond our control. We believe that we currently have sufficient working capital to fund our operations. This belief is based on certain assumptions about the state of the economy, the availability of borrowings to fund our operations and estimates of projected operating performance.performance and our assumptions regarding the extent and duration of the outbreak and the effects therefrom. To the extent that the economy and other conditions affecting our business are significantly worse than we anticipate, we may not achieve our projected level of financial performance and we may determine that we do not have sufficient capital to fund our operations. See “Risk Factors” for additional information.
The Company believes that it will be able to adequately fund its operations and meet its cash flow requirements for at least the next twelve months. TheseThe going concern basis of presentation assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The financial statements do not reflect adjustments that would be necessary if the going concern assumption was not appropriate.
Research and development, patents and licenses, etc.
None.
Trend Information
During fiscal 2018,2021, our results were significantly impacted by the COVID-19 pandemic, however we were faced with several challenges such as an overall softeningable to benefit from the positive impacts of the retail industry in Canada in calendar 2017 leading to an industry-wide decrease in traffic and transaction volume, a weaker holiday season in the luxury retail industry globally, a depressed bridal market throughout Canada caused by increased competition in the industry, the major renovations of two ofmade to our flagship store locations (Montreal and Toronto), the temporary closure of our flagship store in Montreal, Toronto and a significant reductionVancouver in luxury spending by certain affluent tourists withinprior years, on customer experience, customer acquisition and retention, and on sales during the fiscal year. We also benefited from our customer base.improved assortment of third party branded watches across our retail network and e-commerce channel. Increased competition for space in Canada continued to put pressure on occupancy costs and space retention for key locations. Third party brands continue to follow through on opening their ownDuring fiscal 2021, we began the remodelling of two stores in Calgary which will be completed during fiscal 2022 and closing distributioncompleted the move of a store within the same mall in select retail centersMontreal.In fiscal 2020, we finalized the renovation of one location in Toronto and lowering the margins that are earned by retailers impacting our gross margin levels.opened a new store in Calgary.
We continue to successfully pursue our strategy to develop the Bijoux Birks product brand and in fiscal 2018,2021, we launched several new collections under the Bijoux Birks brand. In addition, we continued to pursue our strategies to enhance our customers’in-store experience which includedincludes the remodeling of Birks stores in Canada to provideour retail network with the goal of providing our clients with an engaging buying experience.
Our gross profit margin from continuing operations has declinedincreased in fiscal 2021 driven by lower levels of discounting. This is a positive trend as compared to declines experienced over the pastprevious five years which were primarily due to changes in our product sales mix and the increased efforts over the past years to more quickly and aggressively sell through slow moving and discontinued product brands in an effort to improve the productivity and turnover of our inventory. Going forward, we believe that our gross profit margin will stabilize and begin to increase as we continue to promote the development of the Bijoux Birks product brand which we expect will provide us with higher gross profit margins. Going forward,We plan to continue to expand our wholesale business through which we distribute Bijoux Birks branded products to other retailers, and which we believe will be a significant contributor towards growing our gross profit margins. Furthermore, we also intend to continue to execute our merchandising strategy to expand gross margins by developing and marketing exclusive and unique third-party branded products with higher margins.
Over the past few years we have also decreased the number of stores we operate through our closure of underperforming stores. Going forward we willplan to continue to evaluate the productivity of our existing stores and close unproductive stores. In addition, we will be continuingplan to continue to review opportunities to open new stores in new prime retail locations when the right opportunities exist. Moreover, we plan to continue to invest in our website and e-commerce platform to bolster our online distribution channel which represents an area of focus for us going forward.
Off-balance sheet arrangements
From time to time, we guarantee a portion of our private label credit card sales to our credit card vendor. As of March 31, 201827, 2021 and March 25, 2017,28, 2020, the amount guaranteed under such arrangements was approximately $2.1$1.4 million and $2.6$3,4 million, respectively. The bad debt experienced under these guarantees has not been material. See Note 14(b) to the consolidated financial statements included in this Annual Report on Form20-F for additional discussion. We had no otheroff-balance sheet arrangements as of March 31, 2018 other than our operating lease commitments as detailed below and in Note 13 to our consolidated financial statements.27, 2021.
Commitments and Contractual Obligations
The following table discloses aggregate information about our contractual cash obligations as of March 31, 201827, 2021 and the periods in which payments are due:
Payments due by Period* | ||||||||||||||||||||
Total | Less Than 1 Year | 2-3 Years | 4-5 Years | More than 5 Years | ||||||||||||||||
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Contractual Obligations | ||||||||||||||||||||
Debt maturities(1) | $ | 34,430 | $ | 2,391 | $ | 1,899 | $ | 28,640 | $ | 1,500 | ||||||||||
Capital lease obligations | 578 | 220 | 229 | 129 | – | |||||||||||||||
Interest on debt(2) | 1,441 | 497 | 436 | 343 | 165 | |||||||||||||||
Operating lease obligations(3) | 66,135 | 8,243 | 14,615 | 13,784 | 29,493 | |||||||||||||||
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Total(4) | $ | 102,584 | $ | 11,351 | $ | 17,179 | $ | 42,896 | $ | 31,158 | ||||||||||
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Payments due by Period | ||||||||||||||||||||
Total | Less Than 1 Year | 2-3 Years | 4-5 Years | More than 5 Years | ||||||||||||||||
(In thousands) | ||||||||||||||||||||
Contractual Obligations | ||||||||||||||||||||
Debt maturities(1) | $ | 79,347 | $ | 2,906 | $ | 69,887 | $ | 4,000 | $ | 2,554 | ||||||||||
Finance lease obligations | 341 | 75 | 145 | 121 | — | |||||||||||||||
Other long-term liabilities(2) | 1,501 | 24 | 1,103 | 48 | 326 | |||||||||||||||
Interest on long-term debt(3) | 3,454 | 1,610 | 1,210 | 426 | 208 | |||||||||||||||
Operating lease obligations(4) | 124,042 | 13,319 | 26,998 | 22,387 | 61,338 | |||||||||||||||
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Total | $ | 208,344 | $ | 17,934 | $ | 99,343 | $ | 26,982 | $ | 64,085 | ||||||||||
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* Retrospectively revised (refer to “Significant Transaction” above and to note 18 of our audited consolidated financial statements which are included elsewhere in this Annual Report)
(1) | Includes bank indebtedness in the |
(2) | The amount of less than one year is recorded within accrued liabilities. |
(3) | Excludes interest payments on amounts outstanding under our credit facility as the outstanding amounts fluctuate based on our working capital needs. Interest expense on other variable rate long-term debts was calculated assuming the rates in effect at March |
The operating lease obligations do not include insurance, taxes and common area maintenance (CAM) charges to which we are obligated. CAM charges were |
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In addition to the above and as of March 27, 2021, we had $0.6 million of outstanding letters of credit.
Leases
WeThe Company leases office, distribution, and retail facilities. Certain retail store leases may require the payment of minimum rentals and contingent rent based on a percentage of sales exceeding a stipulated amount. The Company’s lease allagreements expire at various dates through 2034, are subject, in many cases, to renewal options and provide for the payment of our retail locations undertaxes, insurance and maintenance. Certain leases contain escalation clauses resulting from the pass through of increases in operating leases. Additionally, we have operating leases for certain equipment.
Operating leases for store locations are expensed over the term of the initial lease period. While lease renewal periods are available on most leases, renewal periods are not included in the accounting lease term because we believe there are no punitive terms or circumstances associated withnon-renewal that would reasonably assure renewal. The accounting lease term typically includes a fixturing periodcosts, property taxes and the rentaleffect on costs from changes in consumer price indices, which are considered as variable costs.
The Company determines its lease payments are expensedbased on predetermined rent escalations, rent-free periods and other incentives. The Company recognizes rent expense on a straight-line basis over the related terms of such leases, including any rent-free period and beginning from when the Company takes possession of the leased facility. Variable operating lease term. All reasonably assuredexpenses, including contingent rent escalations, rent holidays, and rent concessions are included when considering the straight-line rent to be expensed. Lease incentives are recorded as deferred rent and amortized as reductions to lease expense over the lease term. Contingent rent payments vary by lease, are based on a percentage of revenue abovesales, CAM charges, rent related taxes, mall advertising and adjustments to consumer price indices, are recorded in the period such amounts and adjustments are determined. Lease terms occasionally include renewal options for additional periods of up to 6 years. The Company uses judgment when assessing the renewal options in the leases and assesses whether or not it is reasonably certain to exercise these renewal options if they are within the control of the Company. Any renewal options not reasonably certain to be exercised are excluded from the lease term. There is generally no readily determinable discount rate implicit in the Company’s leases. Accordingly, the Company uses its incremental borrowing rate for a predetermined sales levelterm that corresponds to the applicable lease term in order to measure its lease liabilities and has elected to use such rates based on lease terms remaining as of March 27, 2021 and any new leases entered into thereafter.
The amounts of the Company’s operating lease right-of-use (“ROU”) asset and current operating lease liabilities are expensed when it becomes probable the sales levels will be achieved. This level is different for each location and includes and excludes various types of sales.
Leasehold improvements are capitalized and typically include fixturing and store renovations. Amortization of leasehold improvements beginspresented separately on the date the asset was placed in service and extends to the lesserConsolidated Balance Sheet as of March 27, 2021. Substantially all of the economic lifeCompany’s leases are operating leases as of March 27, 2021. The Company records lease expenses within selling, general and administrative expenses. The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. ROU assets, as part of the group of assets, are periodically reviewed for impairment.
The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10,Property, Plant and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize.
Payments arising from operating lease activity, as well as variable and short-term lease payments not included within the operating lease liability, are included as operating activities on the Company’s consolidated statement of cash flows. Operating lease payments representing costs to ready an asset for its intended use (i.e. leasehold improvement andimprovements) are represented within investing activities within the initial lease term.Company’s consolidated statements of cash flow.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions about future events and their impact on amounts reported in the financial statements and related notes. Since future events and their impact cannot be determined with certainty, the actual results may differ from those estimates. These estimates and assumptions are evaluated on anon-going basis and are based on historical experience and on various factors that are believed to be reasonable. We have identified certain critical accounting policies as noted below.
Revenue recognitionGoing concern assumption
Sales are recognized at the point of sale when merchandise is picked up by the customer or shipped. Shipping and handling fees billed to customers are included in net sales. Revenues for gift certificate sales and store credits are recognized upon redemption. Prior to recognition asOur consolidated financial statements have been prepared on a sale, gift certificates are recorded as accounts payable on the balance sheet. Based on historical redemption rates, a portion of certificates outstanding and not subject to unclaimed property laws are recorded as income. Certificates outstanding and subject to unclaimed property laws are maintained as accrued liabilities until remittedgoing concern basis in accordance with local ordinance. Salesgenerally accepted accounting principles in the U.S. The going concern basis of consignment merchandise are recognized at such timepresentation assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. In evaluating our ability to continue as the merchandise is sold and are recorded on a gross basis becausegoing concern, we are required to determine whether we have the primary obligorability to fund our operations and meet our cash flow requirements. This evaluation requires us to estimate and forecast our cash flows and excess availability levels under various scenarios for at least the next twelve months from the date the financial statements were authorized for issuance. Significant estimates that have the greatest impact on our analysis include our estimate of sales, gross margins and operating costs, capital expenditures, estimates of collateral values of inventory and accounts receivable performed by our lenders throughout the year which could increase or decrease our availability under our senior secured credit facility, estimates of forecasted working capital levels, timing of inventory acquisitions, vendor terms and payments, interest rate and foreign exchange rate assumptions and forecasted excess availability levels under the senior secured credit facility and senior secured term loan. Furthermore, we have also made judgments on whether any reserves would be imposed by our senior secured lenders. In addition, we also had to consider how the effects of COVID-19 impacts our ability to forecast various assumptions and how it may impact our liquidity. The uncertainties around COVID-19 and related regulations, responses, and economic uncertainty have led the Company to consider other future scenarios in our analysis. Significant variances from our assumptions used in preparing our going concern analysis could significantly impact our ability to meet our projected cash flows. Our ability to meet our projected cash flows could also be impacted if our senior secured lenders impose additional restrictions on our ability to borrow on our collateral or if we do not adhere to the applicable financial covenant under our Credit Facility and Term Loan, which would be considered an event of default.
The Company funds its operations primarily through committed financing under its Credit Facility and Term Loan described in Note 6 of our consolidated financial statements included elsewhere in this 20-F. The Credit Facility along with the Term Loan are used to finance working capital, finance capital expenditures, provide liquidity to fund the Company’s day-to-day operations and for other general corporate purposes. The Company’s ability to meet its cash flow requirements in order to fund its operations is dependent upon its ability to attain profitable operations, obtain favorable payment terms from suppliers, as well as to maintain specified excess availability levels under its Credit Facility and its Term Loan. The sole financial covenant which the Company is required to adhere to under both Credit Facility and its Term Loan is to maintain minimum excess availability of not less than $8.5 million at all times, except that the Company shall not be in breach of this covenant if excess availability falls below $8.5 million for not more than two consecutive business days once during any fiscal month. In the event that excess availability falls below the minimum requirement, this would be considered an event of default under the Credit Facility and under the Term Loan, that could result in the outstanding balances borrowed under the Company’s Credit Facility and Term Loan becoming due immediately, which would result in cross defaults on the Company’s other borrowings. The Company met its excess availability requirement as of and throughout the year ended March 27, 2021 and as of the transaction,date the financial statements were authorized for issuance, and expects to have general latitudeexcess availability of at least $8.5 million for at least the next twelve months.
The term loan with Investissement Québec requires the Company to maintain on settingan annual basis a working capital ratio (defined as current assets divided by current liabilities excluding the price, have discretion ascurrent portion of operating lease liabilities) of at least 1.01). As at March 27, 2021, the Company had a working capital ratio of 1.03. On June 2, 2021, the Company obtained a waiver from Investissement Québec with respect to the suppliers, are involved inrequirement to meet the selection ofworking capital ratio at March 26, 2022.
Refer to note 1 to the product and have inventory loss risk. Sales are reported net of returns and sales taxes. We generally give our customers the right to return merchandise purchased by them within 10 to 90 days, depending on the products sold and record a provision at the time of saleconsolidated financial statements for the effect of the estimated returns. Repair sales are recorded at the time the service is rendered. Licensing fees are recognized when the product is delivered to and accepted by the customer. Sales to our wholesale customers are recognized at the time the product is shipped out of our facilities.additional information.
AllowanceReserves for inventory shrink and slow moving inventoryslow-moving finished goods inventories
The allowance for inventory shrink is estimated for the period from the last physical inventory date to the end of the reporting period on a store by store basis and at our distribution centers. The shrink rate from the most recent physical inventory, in combination with historical experience, is the basis for providing a shrink allowance.
We write downreserve inventory for estimated slow movingslow-moving finished goods inventory equal to the difference between the cost of inventory and the estimated marketnet realizable value, which is based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additionalThe allowance for slow-moving finished goods inventory write-downs may be required.
Impairment of long-lived assets
We periodically review the estimated useful lives of our depreciable assets and changes in useful lives are made on a prospective basis unless factors indicate the carrying amounts of the assets may not be recoverable and an impairment write-down is necessary. However, we review our long-lived assets for impairment once events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when the estimated undiscounted future cash flows expectedequal to result from the use of an asset and its eventual disposition is less than its carrying value. Measurement of an impairment loss for such long-lived assets is based on the difference between the carrying valuecost of inventories and the fair valueestimated selling prices. There is estimation uncertainty in relation to the identification of slow-moving finished goods inventories which are based on certain criteria established by the asset, with fair value being determinedCompany. The criteria includes operational decisions by management to discontinue ordering the inventory based upon discounted cash flows or appraised values, depending on sales trends, market conditions, and the natureaging of inventories. Estimation uncertainty also exists in determining the asset. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. During fiscal 2018, the Company recorded impairment chargesexpected selling prices through normal sales channels based on long-lived assets of $2.2 million associated the projected operating performance of a retail locationassumptions about future demand and software impairment associated with a decision to modify the scope of the implementation of the Company’s new ERP. No impairment charges were recorded in fiscal 2017 and fiscal 2016 in our consolidated financial statements.
Inflation
The impact of inflation on our operations has not been significant to date.market conditions for those slow-moving inventories.
Recent Accounting Pronouncements
See Note 2 (s) to the consolidated financial statements included in this Form20-F.
Safe Harbor
See section entitled “Forward-Looking Information” at the beginning of this Annual Report on Form20-F.
Item 6. |
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information about our executive officers and directors, and their respective ages and positions as of June 1, 2018:May 31, 2021. At the commencement of fiscal year 2021, the Company had five executive officers. During the fiscal year 2021, Lanita Layton ceased to be an executive officer of the Company. Lanita Layton, our former Vice President, Chief Omni-Channel Sales and Marketing Officer, left the Company on July 3, 2020.
Name | Age | Position | ||
Niccolò Rossi di Montelera | Executive Chairman of the Board & Director | |||
Jean-Christophe Bédos | President, Chief Executive Officer & Director | |||
Davide Barberis Canonico | Director | |||
| Director | |||
| Director | |||
| Director | |||
| Director | |||
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| Vice President, Chief Financial | |||
Maryame El Bouwab | Vice President, Merchandising, Planning and Supply Chain | |||
| Vice President, | |||
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Directors
Niccolò Rossi di Montelera, age 45,48, was elected to the Company’s Board of Directors on September 23, 2010 and has served as Vice-Chairman of the Company’s Board of Directors from June 2015 until being appointed Executive Chairman of the Board effective January 1, 2017. Mr. Rossi di Montelera’s term as a director of Birks Group expires in 2018.2021. Mr. Rossi di Montelera was a consultant for Gestofi from August 2009 until December 31, 2016 and provided consulting services to the Company in the areas of new product and brand development in addition to being involved with the Company’s business development activities and strategic initiatives. From 2007 to 2009, he served as the Company’s Group Divisional Vice President responsible for product development, wholesale ande-commerce. From 2005 to 2006, he served as the Company’s Group Director responsible for product development. From 2002 to 2003, he worked at Regaluxe Investments SA and was responsible for the North American business development for Royale de Champagne and from 1999 to 2002 he was a Project Leader for Ferrero Group. He was a member of the Supervisory Board of Directors of Montrovest until June 30, 2012. Mr. Rossi di Montelera is the son of Dr. Rossi di Montelera, who was the Company’s Chairman of the Board until December 31, 2016, and is thebrother-in-law of Mr. CarloCoda-Nunziante who was the Company’s Vice President, Strategy until March 31, 2018.
Jean-Christophe Bédos,age 53,56, was appointed to the Company’s Board of Directors on April 19, 2012. He was the Company’s Chief Operating Officer from January 2012 to March 2012 and became the Company’s President and Chief Executive Officer on April 1, 2012. He became a director of Birks Group on April 19, 2012 and his term as a director expires in 2018.2021. He has over 25 years of experience in merchandising, marketing, branding and product development in the global retail luxury sector. Mr. Bédos was President and Chief Executive Officer of French jeweler Boucheron from May 2004 to September 2011. Prior to that, he was the Managing Director of Cartier France from 2002 to 2004, and International Executive Manager alongside the President and Chief Executive Officer of Richemont International from 2000 to 2002. Mr. Bédos started his career in the jewelry industry at Cartier in 1988.
Davide Barberis Canonico, age 52,55, was elected to the Company’s Board of Directors in September 2013. Mr. Canonico’s term as a director of Birks Group expires in 2018. He was a member of the board of directors of Mayors from November 2005 until October 2017.2021. From January 1, 2016 until April 2018, Mr. Canonico was also the Chief Executive Officer of Autofil Yarn Ltd., a company in the textile industry supplying yarn to the automotive industry with manufacturing facilities in the United Kingdom and Bulgaria and was the Group Strategy Director from June 2015 to December 2015. From 1998 to March 2016, he was President and Chief Executive Officer of Manifattura di Ponzone S.p.A., an Italian family-owned company in the textile industry. From 2001 to 2015, he was also a member of the board of Sinterama S.p.A., a company in the textile industry with manufacturing facilities worldwide. He was a member of the Supervisory Board of Montrovest B.V. until April 2018.
Emily Berlin, age 71, has been a member of the Company’s Board of Directors since November 2005. Ms. Berlin’s term as a director of Birks Group expires in 2018. She was a member of the board of directors of Mayors from October 2002 until November 14, 2005. She was a Senior Managing Director of Helm Holdings International from 2001 until December 2012, which was a member of a diversified privately owned group of companies operating principally in Central and South America where she focused principally on the banking and energy sectors. Since January 2013, Ms. Berlin has been a strategic consultant to SoEnergy International Inc., an affiliate of Helm Holdings International, operating in the energy sector. From 1974 to 2000, she was a member of the law firm Shearman & Sterling, becoming a partner in 1981.
Shirley A. Dawe, age 71,74, has been a member of the Company’s Board of Directors since 1999. Ms. Dawe’s term as a director of Birks Group expires in 2018.2021. She is also a corporate director and has been President of Shirley Dawe Associates Inc., a Toronto-based management advisory company specializing in the retail sector since 1986. From 1969 to 1985, she held progressively senior executive positions with Hudson’s Bay Company. Her expertise in the retail sector led to her appointment on industry-specific public task forces and to academic andnot-for-profit boards of directors. Her wide management and consumer marketing experience brought Ms. Dawe to the board of directors of numerous public and private companies in Canada and the U.S.
Frank Di Tomaso,age 71,74, was elected to the Company’s Board of Directors in September 2014. Mr. Di Tomaso’s term as a director of Birks Group expires in 2018.2021. Mr. Di Tomaso is a corporate director. He has been a Chartered
Professional Accountant since 1972. He was an audit and advisory partner at Raymond Chabot Grant Thornton LLP from 1981 to 2012 where he held the position of Managing Partner Audit – Public Companies until he retired in 2012. Mr. Di Tomaso also has been and currently is a member of a number of other public company corporate boards, namely Intertape Polymer Group Inc. and ADF Group Inc.
Louis L. Roquet,age 75,78, was appointed to the Company’s Board of Directors on May 11, 2016. Mr. Roquet’s term as a director of Birks Group expires in 2018.2021. Mr. Roquet is the Chancellor and Chairman of the Board of Université de Montréal since June 2018. Mr. Roquet was previously a member of the Company’s Board of Directors from August 2007 to July 2014 before being appointed by the Québec Government to the position of Chairman of the Board of Investissement Québec in July 2014 from which he resigned on May 2, 2016. From 2012 to 2014, Mr. Roquet was Managing Director of Cevital Spa, a large Algerian manufacturer of food products. Mr. Roquet has served as General Manager of the City of Montréal from January 2010 to January 2012. From April 2004 to October 2009, he was President and Chief Operating Officer of Desjardins Venture Capital and was responsible for managing Desjardins’ venture capital funds together with those of Capital Régional and Coopératif Desjardins, a publicly-traded company established in 2001 with an authorized capitalization of $1.0 billion. From 2002 to 2004, Mr. Roquet served as President and General Manager of Société des alcools du Québec, (“SAQ”), Québec’s Liquor Board. Prior to 2002 he held the title of President and Chief Executive Officer of Investissement Québec, Secretary General of the City of Montréal and General Manager of Montréal Urban Community. He also serves as a director of numerousnon-profit organizations.
Joseph F.X. Zahra,age 62,65, was appointed to the Company’s Board of Directors on November 9, 2016. Mr. Zahra’s term as a director of Birks Group expires in 2018.2021. Mr. Zahra is a founding partner and director of SurgeAdvisory Limited, an advisory firm which focuses on strategy and transformation management, succession planning and boardroom coaching operating in Malta, since January 1, 2017. Prior thereto, he was a founding partner and managing director of MISCO, an independent consulting group operating in Malta, Cyprus and Italy from 1983 to 2016. Mr. Zahra also serves as director of several private, publicly-listed and regulated companies operating in the following industries: financial services (insurance and investment services), oil services, transportation, retail and hospitality. Mr. Zahra is also chairman of the board of directors of Forestals Investments Ltd. and of Multi Risk Ltd.Vodafone Holdings and chairman of the audit committee of Corinthia Palace Hotel Co. Ltd., Medserv plc and member of the audit committee of United Finance plc.plc and of Vodafone Insurance Ltd. He also serves as chairman of the investment committee of Pendergardens Developments plc and of Multi Risk Indemnity Ltd. and is a member of the investment committee of Chasophie Group Limited.Limited and the underwriting committee of Vodafone Insurance Ltd. Mr. Zahra was director of the Central Bank of Malta from 1992 to 1996 and served as executive chairman of Bank of Valletta Plc from 1998 to 2004, Maltacom Plc in 2003 and Middlesea Insurance Plc from 2010 to 2012. Mr. Zahra was appointed as one of the five international auditors at the Prefettura per gli Affari Economici of the Holy See from 2010 to 2014 and was the president of the economic and administrative reform commission (COSEA) from 2013 to 2014 as well as the vice coordinator of the newly formed Council for the Economy of the Holy See since 2014.
Other Executive Officers
Pasquale (Pat) Di Lillo,Katia Fontana, age 56,51, is our Vice President, Chief Financial and Administrative Officer and has been with Birks Group since January 2015.13, 2020. Prior to joining us, heshe was SeniorChief Financial Officer at Avenir Global, a holding company for communications and public relations firms. Prior thereto, she was with Groupe Dynamite Inc., an apparel retailer, from 2004 to 2018 in various positions, including Chief Financial Officer, Vice President, Finance and Corporate Controller atSNC-Lavalin Group Inc., one of the world’s largest engineeringAdministration and construction companies from May 2010Director, Finance. From 1993 to December 2014 and was Vice-President, Taxation from August 2007 to May 2010. From October 1983 to August 2007, he2004, Ms. Fontana was with KPMG LLP, where he was appointed a partnerDeloitte in 1995.its audit and assurance practice.
Maryame El Bouwab, age 40,43, is the Company’sour Vice President, Merchandising, Planning and Supply Chain. She has been with the Company since March 2013. Prior to her current position, she was the Company’s Vice President, Planning and Supply Chain from June 1, 2018 to September 30, 2018 and Vice President, Merchandise Planning from February 1, 2017 to April 30,May 31, 2018. From March 2013 to February 2017, she was the Company’s Director of Merchandise Planning. Prior to joining the Company, Ms. El Bouwab was, from 2005 to 2012, with Mexx Canada and Lucky Brand Jeans and held the position of Merchandising and Planning Manager.
Eva HartlingMiranda Melfi,, age 37,57, is our Vice President, Birks Brand andHuman Resources, Chief Marketing Officer. She has been with the Company since August 2010. Prior to her current position, she was the Company’s Vice President, Marketing and Communications from November 2013 to January 2017. From August 2010 to November 2013, she was Director, Public Relations.Prior to joining Birks Group, Ms. Hartling, from 2009 to 2010, was with Telefilm Canada and held the position of Senior Advisor, External Communications. From 2007 to 2009, Ms. Hartling was Director, External Communications at Rona Inc., a publicly-traded retailer and distributor of hardware, building materials and home renovation products. From 2002 to 2007, she held various positions in public relations.
Miranda Melfi, age 54, is our Vice President, Legal AffairsOfficer and Corporate Secretary and has been with Birks Group since April 2006. Prior to her current position, she was our Vice President, Legal Affairs and Corporate Secretary from April 2006 to September 2018. Prior to joining us, Ms. Melfi was with Cascades Inc., a publicly-traded pulp and paper company for eight years and held the position of Vice President, Legal Affairs, Boxboard Group. From 1994 to 1998, Ms. Melfi was Vice President, Legal Affairs and Corporate Secretary at Stella-Jones Inc., a publicly-traded wood products company, and from 1991 to 1994, practiced corporate, commercial and securities law with Fasken Martineau DuMoulin LLP.
Hélène Messier, age 58, is our Vice President & Chief Talent Officer and has been with Birks since November 2000. Prior to joining Birks, she was Assistant General Manager of theFederation desProducteurs de Lait du Québec (Quebec’s Federation of Milk Producers) from November 1997 to November 2000. From 1982 to 1997, she held various management positions both in operations and human resources with Bell Canada.
Aurélie Pépion, age 37, is our Vice President, Omni-Channel Sales and Operations, and has been with the Company since April 2018. Prior to joining us, Ms. Pépion was the Managing Director Canada of Swarovski (Consumer Goods Business) from March 2016 to March 2018 and prior thereto, she held various positions with Swarovski since February 2009, namely, Director Multibrand (Europe, Middle East, Africa), Head of Retail Multibrand (France), Key Account Manager (France), and Watch Distribution Manager (France). Prior thereto, she was with Gucci Group Watches sales management from February 2007 to January 2009 and was a District Manager for Puig Prestige in 2005 and 2006.
COMPENSATION OF DIRECTORS AND OFFICERS
Director Compensation
During fiscal 2018,2021, each director who was not an employee of the Company receivedwas entitled to receive an annual fee of U.S. $25,000 (approximately $33,000 in Canadian dollars) for serving on our Board of Directors, U.S. $1,500 (approximately $2,000 in Canadian dollars) for each Board meeting attended in person and U.S. $750 (approximately $1,000 in Canadian dollars) for each Board meeting attended by phone. The chairperson of each of the audit committee, compensation committee and corporate governance committee, and the compensation and nominating committee received an additional annual fee of U.S. $10,000 and U.S. $8,000 (approximately $13,000 and $5,000,$10,500 in Canadian dollars) respectively. The members of each of the audit committee, compensation committee and corporate governance committee, and the compensation and nominating committee received an additional annual fee of U.S. $5,000, and U.S. $4,000 (approximately $6,500 and $2,500,$5,250 in Canadian dollars), respectively, and the independent member of the executive committee received an additional annual fee of $4,000.U.S. $4,000 (approximately $5,250 in Canadian dollars). The chairperson and any other members of any special independent committee of directors that may be established from time to time is entitled to receive compensation as may be determined by the Board of Directors for his or her service on such committee. EachAs an effort to mitigate the financial impact of COVID-19, from the onset of the COVID-19 pandemic, each director agreed to fee reductions of 20% for the months of April, May and June 2020, 10% for the months July to December 2020, and 20% for the months of January to March 2021.
Since September 2018 and every September thereafter, each director who is not an employee of the Company is entitled to receive deferred stock units equal to a value of U.S. $25,000 (approximately $33,000 in September 2018 and every September thereafter.Canadian dollars). In November 2016, September 2017, September 2018, October 2019, and September 2017, the directors2020 each non-employee director received deferred stock units equal to a value of U.S. $10,000, U.S. $20,000, U.S. $25,000, U.S. $25,000 and $20,000,U.S. $25,000 (approximately $13,000, $26,000, $33,000, $33,000, and $33,000 in Canadian dollars), respectively. In June 2019, the chairman of the Special Committee and each member of the Special Committee was issued deferred stock units equal to a value of U.S. $30,000 and U.S. $25,000 (approximately $40,000 and $33,000 in Canadian dollars), respectively. In April 2014 and April 2015, 5,000 stock appreciation rights were granted to eachnon-employee director. In addition, in September 2014, 2,000 stock appreciation rights were granted to a new member of the Company’s Board of Directors. All directors were reimbursed for reasonable travel expenses incurred in connection with the performance of their duties as directors.
On November 15, 2016, the Company’s Board of Directors approved annual payments of €200,000 (approximately $225,000$310,000 in U.SCanadian dollars) and €50,000 (approximately $56,300$78,000 in U.SCanadian dollars) to Mr. Niccolò Rossi di Montelera for his role as Executive Chairman of the Board and Chairman of the Executive Committee, respectively, effective January 1, 2017. As an effort to mitigate the financial impact of COVID-19, from the onset of the COVID-19 pandemic, Mr. Niccolò Rossi di Montelera agreed to a COVID-19 fee reduction of 20% for the months of April, May and June 2020, 10% for the months of July to December 2020, and 20% for the months of January to March 2021.
Executive Compensation
We are a “foreign private issuer” under U.S. securities laws and not a reporting issuer under Canadian securities laws and are therefore not required to publicly disclose detailed individual information about executive compensation under U.S. securities laws to the extent that we comply with the rules of our home jurisdiction. As such, the executive compensation of our Chief Executive Officer, Chief Financial Officer and three other most highly compensated executive officers are detailed in our Management Proxy Circular described below. Under theCanada Business Corporations Act, being the statute under which we were incorporated, we are required to provide certain information on executive compensation. The aggregate compensation paid by us to our eightfour executive officers, and one executive officer position that was eliminated in fiscal 2018, including one who left the Company during the year,2021, was approximately $1,989,870$1,506,000 (annual salary). including the COVID-19 salary reductions.
The summary compensation table regarding our Chief Executive Officer, Chief Financial Officer and three other most highly compensated executive officers and the option/RSU grants and exercise of options/RSU tables in our Management Proxy Circular will be filed on Form6-K with the SEC in connection with our 20182021 Annual Meeting of Shareholders.
Birks Group Incentive Plans
The following plan makes reference to stock prices, since BGI trades publicly on the NYSE American, all stock prices are denominated in U.S. dollars.
Long-Term Incentive Plan
In 2006, Birks Group adopted a Long-Term Incentive Plan to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees and consultants and to promote the success of Birks Group’s business. As of May 31, 2018,2021, there were 118,00080,000 cash-based stock appreciation rights exercisable by members of the Company’s Board of Directors and outstanding stock options to purchase 615,000253,147 shares of the Company’s Class A voting shares granted to eight members of the Company’s senior management team under the Long-Term Incentive Plan. The stock appreciation rights outstanding as of May 31, 2018,2021, under the Long-Term Incentive Plan, have a weighted average exercise price of $1.16$1.12 and the stock options outstanding as of May 31, 2018,2021, under the Long-Term Incentive Plan have a weighted average exercise price of $1.03.$1.10.
In general, the Long-Term Incentive Plan is administered by Birks Group’s Board of Directors or a committee designated by the Board of Directors (the “Administrator”). Any employee or consultant selected by the Administrator is eligible for any type of award provided for under the Long-Term Incentive Plan, except that incentive stock options may not be granted to consultants. The selection of the grantees and the nature and size of grants and awards are wholly within the discretion of the Administrator. The Long-Term Incentive Plan provides for the grant of incentive stock options that qualify under Section 422 of the U.S Internal Revenue Code andnon-statutory options, stock appreciation rights, restricted stock awards, restricted stock units and performance unit or share awards, as such terms are defined in the Long-Term Incentive Plan.
In the event of a change in control of Birks Group, the Administrator, at its sole discretion, may determine that all outstanding awards shall become fully and immediately exercisable and vested. In the event of dissolution or liquidation of Birks Group, the Administrator may, at its sole discretion, declare that any stock option or stock appreciation right shall terminate as of a date fixed by the Administrator and give the grantee the right to exercise such option or stock option right.
In the event of a merger or asset sale or other change in control, as defined by the Long-Term Incentive Plan, the administratorAdministrator may, in its sole discretion, take any of the following actions or any other action the administratorAdministrator deems to be fair to the holders of the awards:
Provide that all outstanding awards upon the consummation of such a merger or sale shall be assumed by, or an equivalent option or right shall be substituted by, the successor corporation or parent or subsidiary of such successor corporation;
Prior to the occurrence of the change in control, provide that all outstanding awards to the extent they are exercisable and vested shall be terminated in exchange for a cash payment equal to the change in control price; or
Prior to the occurrence of the change in control, provide for the grantee to have the right to exercise the award as to all or a portion of the covered stock, including, if so determined by the administrator,Administrator, in its sole discretion, shares as to which it would not otherwise be exercisable.
The Long-Term Incentive Plan authorized the issuance of 900,000 Class A voting shares, which consisted of authorized but unissued Class A voting shares. The Long-term Incentive Plan expired on February 10, 2016 and no further awards will be granted under this plan. However, this plan will remain effective until the outstanding awards issued thereunder terminate or expire by their terms.
Employee Stock Purchase Plan
In 2006, Birks Group adopted an Employee Stock Purchase Plan (“ESPP”), which was approved in September 2006. The ESPP permits eligible employees, which do not include executives of Birks Group Inc., to purchase our Class A voting shares from Birks Group at 85% of their fair market value through regular payroll deductions. A total of 100,000 shares of our Class A voting shares are reserved for issuance under the ESPP. From its inception until
February 2009, a total of, 99,995 Class A voting shares were issued under the ESPP and no additional shares will be issued under this plan.
CEO and Senior Executives Long-Term Cash Incentive Plans
During the fiscal year ended March 30, 2013, the Board of Directors approved the long-term cash incentive plans (“LTCIPs”) for the Chief Executive Officer and Senior Executive members. The intention of the LTCIPs are to reward the Chief Executive Officer and other members of senior management based on our performance over three-year cycles, the first of which began with the fiscal 2013 through fiscal 2015 period. The approval of a new three-year cycle is at the discretion of the Board of Directors on recommendation of the compensation committee. The payouts under the LTCIPs will be based on our earnings before tax (“EBT”) performance with the payout level earned during the three-year period either increasing or decreasing based on our EBT performance levels versus thresholds established in each of the three years of the three-year cycle and afterwards, if the LTCIPs are continued. The payout will be 1/3 of the LTCIPs value earned at the end of the first three year cycle and 1/3 of the LTCIPs value for every year thereafter, subject to the Chief Executive Officer and participating executives continued employment and subject to the payment not causing any default on the Company’s credit facilities. The LTCIPs payouts will continue to rise or fall based on the Company’s performance each year. The total LTCIPs pool is only created to compensate if EBT is above a certain growth rate and the payout is capped so that the total three-year costs of the programs combined does not exceed 10% of our total earnings before taxes for the three-year period. As of March 28, 2015 and March 29, 2014, no amounts were earned under the LTCIP and no new three-year cycles have been approved by the Board of Directors. The LTCIPs are no longer applicable to the Chief Executive Officer or any other Senior Executive.
CEO Long-Term Cash Incentive Plan
In April 2015, our Board of Directors approved a long-term cash incentive plan for the Chief Executive Officer (“CEO LTCIP”). The intent of the CEO LTCIP is to reward the Chief Executive Officer based on the Company’s performance over three-year cycles, the first of which begins with the fiscal 2016 through fiscal 2018 period. The approval of this three-year cycle is at the discretion of the Board of Directors on recommendation of the Compensation Committee. The CEO LTCIP for fiscal 2016-2018 is structured to fund a pool of dollars based on the successful achievement of earnings before tax (“EBT”) and the level of achievements of three key metrics that can modify the amount achieved based on EBT over threeone-year periods. The amount of money funded each year, if earned, is added together at the end of the three-year cycle (with each year comprising 1/3 of the total payout opportunity). Fifty percent (50%) of the final value of the pool following completion of the three year cycle (early fiscal year 2019) is payable at the end of the three year cycle, with the remaining 50% payable one year thereafter (early fiscal 2020) subject to the Chief Executive Officer remaining employed at the time of payout and the payout not causing any default under our senior secured credit facilities. As of March 31, 2018 and March 25, 2017, no amounts were earned under the CEO LTCIP for fiscal 2016-2018.
Omnibus Long-Term Incentive Plan
On August 15, 2016, the Board of Directors adopted the Company’s Omnibus Long-Term Incentive Plan (the “Omnibus LTIP”), and same was approved by the Company’s shareholders on September 21, 2016. Under the Omnibus LTIP, the Company’s directors, officers, senior executives and other employees of the Company or one of its subsidiaries, consultants and service providers providing ongoing services to the Company and its affiliates may fromtime-to-time be granted various types of compensation awards, as same are further described below. The Omnibus LTIP is meant to replace the Company’s former equity awards plans. A total of 1,000,000 shares of the Company’s Class A voting shares are reserved for issuance under the Omnibus LTIP. In no event shall the Company issue Class A voting shares, or awards requiring the Company to issue Class A voting shares, pursuant to the Omnibus LTIP if such issuance, when combined with the Class A voting shares issuable upon the exercise of awards granted under the Company’s former plan or any other equity awards plan of the Company, would exceed 1,796,088 Class A voting shares, unless such issuance of Class A voting shares or awards is approved by the shareholders of the Company. This limit shall not restrict however, the Company’s ability to issue awards under the Omnibus LTIP that are payable other than in shares. As of May 31, 2018,2021, the only awards outstanding under the Omnibus LTIP were 130,410689,012 deferred stock units granted to members of the Company’s Board of Directors, 112,000 restricted stock units granted to members of the Company’s senior management team and 193,000142,000 Class A voting shares underlying options granted to members of the Company’s senior management team.team and 375,000 restricted stock units granted to members of the Company’s senior management team as well as certain employees in managerial roles.
Birks Employee Stock Option Plan
Effective May 1, 1997, Birks adopted an Employee Stock Option Plan (the “Birks ESOP”) designed to attract and retain the services of selected employees ornon-employee directors of Birks or its affiliates who are in a position to make a material contribution to the successful operation of ourits business. The Birks ESOP was amended as of June 20, 2000. Effective as of November 15, 2005, no awards will be granted under the Birks ESOP. However, the Birks ESOP will remain in effect until the outstanding awards thereunder terminate or expire by their terms. As of May 31, 2018,2021, there were 5,666no longer any current Class A voting shares underlying options granted under the Birks ESOP at a weighted average exercise price of $1.05 per share.ESOP.
Mayors Equity-Incentive Plans
Mayors’ 1991 Stock Option Plan
Mayors also adopted a stock option plan in 1991, in order to make option awards to key employees and directors. Effective as of November 15, 2005 no further awards will be granted under this plan. However, this plan will remain in effect until the outstanding awards thereunder terminate or expire by their terms. In connection with the Aurum Transaction, option holders under this plan were offered to cash-out their options. As of June 30, 2018, there were no Class A voting shares underlying options granted under this plan.
Stock Option Amendments
On March 18, 2010, the Company filed with the SEC a Tender Offer Statement on Schedule TO which included therein an “Offer to Amend Certain Outstanding Options” (the “Offer to Amend”), relating to an offer by the Company to its current employees and subsidiaries’ employees to amend certain of their outstanding options to purchase the Company’s Class A voting shares. Only options granted under the Henry Birks & Sons Inc. Employee Stock Option Plan effective as of May 1, 1997 and amended as of June 20, 2000 and Mayor’s Jewelers, Inc. 1991 Amended Stock Option Plan, with an exercise price per share greater than $4.00 (in the currency in which such option was granted) that remained outstanding as of the expiration of the offer on April 16, 2010, were eligible to be amended in the offer. Pursuant to the Offer to Amend, the Company received, as of April 16, 2010, tendered eligible stock options covering 85,786 shares of its Class A voting shares and provided amended options to purchase up to 12,077 shares of the Company’s Class A voting shares, thereby reducing the number of shares issuable upon exercise of outstanding options by 73,709 shares. The amended stock options have exactly the same terms as the eligible stock options, but they are exercisable for a lesser number of Class A voting shares, they have a new exercise price of $1.05 per share, a newten-year term, and different terms in the event of a change in control, going-private transaction, or a liquidation or dissolution of the Company, as described in the Offer to Amend.
BOARD PRACTICES
Ourby-laws state that the Board of Directors will meet immediately following the election of directors at any annual or special meeting of the shareholders and as the directors may from time to time determine. See “Item 10. Additional Information—Articles of Incorporation andBy-laws.”
Under our Restated Articles of Incorporation, our directors serveone-year terms although they will continue in office until successors are appointed. None of the members of our Board has service agreements providing for benefits upon termination of employment, except for Mr. Bédos, our President and Chief Executive Officer. See “Item 10. Additional Information—Material Contracts—Employment Agreements.”
Our Board of Directors has determined that five of our eightseven directors (Emily Berlin,(Davide Barberis Canonico, Shirley A. Dawe, Frank Di Tomaso, Louis L. Roquet and Joseph F.X Zahra) qualify as independent directors within the meaning of Section 803A of the NYSE American Company Guide.
All of the directors on our Compensation Corporate Governance and Audit committees are independent. were independent as well as the Corporate Governance committee until it was eliminated in September 2019. As a consequence of the elimination of the corporate governance and nominating committee, the audit and corporate governance committee as well as the compensation and nominating committee were formed. The corporate governance responsibilities of the committee were transferred to the audit committee and the nomination responsibilities were transferred to the compensation committee.
We are a “controlled company” (one in which more than 50% of the voting power is held by an individual, a group or another company) within the meaning of the rules of the NYSE American. Accordingly, we are not required under the NYSE American rules to have a majority of independent directors, a nominating and corporate governance committee and a compensation committee (each of which, under the NYSE American rules, would otherwise be required to be comprised entirely of independent directors). Since November 2005, our Board of Directors has been comprised of a majority of independent directors, except for (i) fiscal year 2013 following the appointment of Mr. Bédos, our President and Chief Executive Officer, as an additional director of the Company, during which period our Board of Directors was comprised of 50% independent directors, (ii) part of fiscal year 2015 following
the 2014 annual shareholder meeting where four of the Company’s eight directors qualified as independent directors, (iii) part of fiscal year 2016 following the resignation of Mr. Guthrie J. Stewart in December 2015 until the appointment of Mr. Louis L. Roquet in May 2016, and (iv) part of fiscal year 2017 until the appointment of Mr. Joseph F.X. Zahra, during which period our Board of Directors was comprised of a majority ofnon-independent directors.
Notwithstanding the fact that we qualify for the “controlled company” exemption, we maintain a Corporate Governancean audit and Nominating Committeecorporate governance committee and a Compensation Committeecompensation and nominating committee comprised solely of independent directors.
During fiscal 2018,2021, our Board of Directors held a total of eleven board of directors meetings andtwenty-one twenty committee meetings. During such period, all of the directors attended 100% of the meetings of the Board of Directors, except for two membersone director who attended 82%91% of thesethe meetings.
Our Board of Directors is supported by committees, which are working groups that analyze issues and provide recommendations to the Board of Directors regarding their respective areas of focus. The executive officers interact periodically with the committees to address management issues. During fiscal 2018,2021, our Board of Directors was composed of the fourthree main committees below. The Board of Directors may from time to time also create special committees of the Board as needed.
1. Audit and Corporate Governance Committee. We have a separately designated standing audit and corporate governance committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. The audit and corporate governance committee operates under a written charter adopted by the Board of Directors. The audit and corporate governance committee reviews the scope and results of the annual audit of our consolidated financial statements conducted by our independent auditors, the scope of other services provided by our independent auditors, proposed changes in our financial accounting standards and principles, and our policies and procedures with respect to its internal accounting, auditing and financial controls. The audit and corporate governance committee also examines and considers other matters relating to our financial affairs and accounting methods, including selection and retention of our independent auditors. The audit and corporate governance committee is also responsible for overseeing all aspects of the Company’s corporate governance policies. In addition, the audit and corporate governance committee is responsible for the oversight and review of all related party transactions. During fiscal 2018,2021, the audit and corporate governance committee held fivefour meetings. During such period, all the members of the audit and corporate governance committee attended 100% of these meetings. During fiscal year 2018,2021, the audit and corporate governance committee was comprised of Frank Di Tomaso (Chair), Emily Berlin, Louis L. Roquet, and Joseph F.X. Zahra, , each of whom was financially literate and an independent (as defined by the NYSE American listing standards and SEC rules),
non-employee director of the Company. We have determined that Frank Di Tomaso is an “audit committee financial expert” as this term is defined under SEC rules. Neither the SEC nor the NYSE American requires us to designate an “audit committee financial expert”. A copy of the audit committee charter is available on the Company’s website atwww.birksgroup.comwww.birks.com.
2. Compensation and Nominating Committee. We have a standing compensation committee. The compensation and nominating committee operates under a written charter adopted by the Board of Directors. The purpose of the compensation and nominating committee is to recommend to the Board of Directors (i) director compensation and (ii) executive compensation, including base salaries, bonuses and long-term incentive awards for the Chief Executive Officer and certain other executive officers of Birks Group. The compensation and nominating committee also establishes criteria for goals and objectives for variable compensation, evaluates the performance of the Chief Executive Officer on an annual basis and provides recommendations to the Board of Directors regarding Chief Executive Officer and senior management succession plans. Certain decisions regarding compensation of certain other executive officers are reviewed by the compensation committee. During fiscal 2018,2021, the compensation and nominating committee held fivefour meetings and all of the members of the compensation and nominating committee attended 100% of these meetings during such period. During fiscal 2018,2021, the compensation and nominating committee was comprised of Shirley A. Dawe (Chair), Frank Di Tomaso and Louis L. Roquet. On September 17, 2020, Davide Barberis Canonico was named to the committee and attended the last two meetings. Each member of the compensation and nominating committee is an independent (as defined by the NYSE American listing standards),non-employee director of the Company.
3. Corporate Governance and Nominating Committee. The corporate governance and nominating committee is responsible for overseeing all aspects of our corporate governance policies. The corporate governancecompensation and nominating committee is also responsible for the oversight and review of all related party transactions and for nominating potential nominees to the Board of Directors. OurThe Company’s policy with regard to the consideration of any director candidates recommended by a shareholder is that weit will consider such candidates and evaluate such candidates by the same process as candidates identified by the corporate governancecompensation and nominating committee. During fiscal 2018,The Company has adopted a policy requiring that a director nominee, whether such candidate was recommended by the corporate governancecompensation and nominating committee held five meetingsor a shareholder, should possess, at least, integrity and all members ofcommitment to service on the corporate governanceboard. In addition to those minimum qualifications, the compensation and nominating committee attended 100%will consider the following qualities or skills, which the Board as a whole should possess: business judgment, financial literacy, public company experience, accounting and finance experience, industry knowledge, diversity and the ability to provide strategic insight and direction A detailed discussion of each of these meetings during such period. Our corporate governanceattributes can be found in the compensation and nominating committee charter, which is comprised of three directors and operates under a written charter adopted byavailable on the Board of Directors. During fiscal 2018, the corporate governance and nominating committee was comprised of: Emily Berlin (Chair), Shirley Dawe, and Frank Di Tomaso. Every member of the corporate governance and
nominating committee is an independent (as defined by the NYSE American listing standards),non-employee director of Birks Group.
4.3. Executive Committee. We have a standing executive committee. The executive committee operates under a written charter adopted by the Board of Directors. The purpose of the executive committee is to provide a simplified review and approval process in between meetings of the Board of Directors for certain corporate actions. The intent of the executive committee is to facilitate our efficient operation with guidance and direction from the Board of Directors. The goal is to provide a mechanism that can assist in our operations, including but not limited to monitoring the implementation of policies, strategies and programs. In addition, the executive committee’s mandate is to assist the Board with respect to the development, continuing assessment and execution of the Company’s strategic plan. The executive committee is comprised of at least three members of the Board of Directors. Vacancies on the committee are filled by majority vote of the Board of Directors at the next meeting of the Board of Directors following the occurrence of the vacancy. During fiscal year 2018,2021, the executive committee consisted of: Niccolò Rossi di Montelera (Chair), Jean-Christophe Bédos, Davide Barberis Canonico, Louis L. Roquet and Joseph F.X. Zahra. For fiscal 2018,2021, the executive committee held sixtwelve meetings. All of the members of the executive committee attended 100% of these meetings during such period. Messrs. Canonico, Roquet and Zahra are independent,non-employee directors of the Company.
EMPLOYEES
As of March 31, 2018,27, 2021, we employed approximately 348 persons.319 persons, including 62 employees on temporary leave. None of our employees are governed by a collective bargaining agreement with a labor union. We believe our relations with our employees are good and we intend to continue to place an emphasis on recruiting, training, retraining and developing the best people in our industry.
Retail employees include only those employees within our retail selling locations, while administration includes all other activities including corporate office, merchandising, supply chain operations, e-commerce sales and support, wholesale sales.sales and gold exchange. The table below sets forth headcount by category for our continuing operations in the periods indicated.
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* | As of March 27, 2021, 62 retail employees out of a total of 206 were placed on temporary lay-off as a result of the COVID-19 pandemic. As of March 28, 2020 74 administration and operating support employees out of a total of 124 and 217 retail employees out of total of 241 were placed on temporary lay-off as a result of the COVID-19 pandemic. |
SHARE OWNERSHIP
The following table sets forth information regarding the beneficial ownership of our Class A voting shares as of June 1, 2018,May 31, 2021, based on 10,242,91110,610,973 Class A voting shares, by each executive officer and each director:
Name of Beneficial Owner | Number of Class A Voting Shares Beneficially Owned | Percentage of Beneficially Owned | Number of Class A Voting Shares Beneficially Owned | Percentage of Beneficially Owned | ||||||||||||||||||
Niccolò Rossi di Montelera | — | — | — | — | ||||||||||||||||||
Jean-Christophe Bédos(1) | 349,999 | 3.4% | 373,500 | 3.5 | % | |||||||||||||||||
Davide Barberis Canonico | — | — | — | — | ||||||||||||||||||
Shirley A. Dawe(2) | 1,545 | * | 1,545 | * | ||||||||||||||||||
Emily Berlin(3) | 46,952 | * | ||||||||||||||||||||
Frank Di Tomaso | — | — | — | — | ||||||||||||||||||
Louis L. Roquet | — | — | — | — | ||||||||||||||||||
Joseph F.X. Zahra | — | — | — | — | ||||||||||||||||||
Pat Di Lillo(4) | 65,332 | * | ||||||||||||||||||||
Katia Fontana | — | — | ||||||||||||||||||||
MaryameEl-Bouwab | — | — | — | — | ||||||||||||||||||
Miranda Melfi(5) | 71,666 | * | ||||||||||||||||||||
Hélène Messier(6) | 35,399 | * | ||||||||||||||||||||
Aurélie Pépion | — | — | ||||||||||||||||||||
Miranda Melfi(3) | 40,000 | * |
* | Less than 1%. |
(1) | Includes (a) |
(2) | Includes 1,545 Class A voting shares. |
(3) |
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For arrangements involving the issuance or grant of options or shares of the Company to such named executive officers and other employees, see above under the heading “Compensation of Directors and Officers” and Item 10. “Additional Information—Material Contracts—Employment Agreements.”
Item 7. |
MAJOR SHAREHOLDERS
The following table sets forth information regarding the beneficial ownership of our Class A voting shares as of May 31, 20182021 by each person or entity who beneficially owns 5% or more of outstanding voting securities, including the Class A voting shares and/or Class B multiple voting shares. The major shareholders listed with Class B
multiple voting shares are entitled to ten votes for each Class B multiple voting share held, whereas holders of Class A voting shares are entitled to one vote per Class A voting share held. Unless otherwise indicated in the table, each of the individuals named below, to the Company’s knowledge, has sole voting and investment power with respect to the voting shares beneficially owned by them. The calculation of the percentage of outstanding shares is based on 10,242,91110,610,973 Class A voting shares and 7,717,970 Class B multiple voting shares outstanding on May 31, 2018,2021, adjusted where appropriate, for shares of stock beneficially owned but not yet issued.
Beneficial ownership is determined under rules issued by the SEC. Under these rules, beneficial ownership includes any of the Class A voting shares or Class B multiple voting shares as to which the individual or entity has sole or shared voting power or investment power and includes any shares as to which the individual or entity has the right to acquire beneficial ownership within 60 days through the exercise of any warrant, stock option or other right. The inclusion in this Annual Report of such voting shares, however, does not constitute an admission that the named individual is a direct or indirect beneficial owner of such voting shares. The voting shares that a person has the right to acquire within 60 days of May 31, 20182021 are deemed outstanding for the purpose of calculating the percentage ownership of such person, but are not deemed outstanding for the purpose of calculating the percentage owned by any other person listed. For information regarding entities or persons that directly or indirectly control us, see “Item 3. Key Information – Risk Factors – Risks Related to the Company.”
Name of Beneficial Owner(1) | Number of Class A Voting Shares Beneficially Owned | Percentage of Beneficially Owned | ||||||
The Grande Rousse Trust(2) | 13,646,692 | 76.0 | % | |||||
Meritus Trust Company Limited(3) | 13,646,692 | 76.0 | % | |||||
Montrovest B.V(4) | 8,846,692 | 63.4 | % | |||||
Mangrove Holding S.A.(5) | 4,800,000 | 33.7 | % |
Name of Beneficial Owner(1) | Number of Class A Voting Shares Beneficially Owned | Percentage of Beneficially Owned | ||||||
The Grande Rousse Trust(2) | 13,646,692 | 74.45 | % | |||||
Meritus Trust Company Limited(3) | 13,646,692 | 74.45 | % | |||||
Montel S.à.r.l(4) | 8,846,692 | 61.74 | % | |||||
Mangrove Holding S.A.(5) | 4,800,000 | 32.85 | % |
(1) | Unless otherwise noted, each person has sole voting and investment power over the shares listed opposite its name. |
(2) | Includes 13,646,692 Class A voting shares, of which 7,717,970 Class A voting shares to which Montel S.à.r.l (“Montel” previously Montrovest B.V. (“Montrovest”)) and Mangrove Holding S.A. (“Mangrove”) collectively would be entitled upon conversion of the Class B multiple voting shares held by |
(3) | Trustee of The Grande Rousse Trust. Includes 13,646,692 Class A voting shares, of which 7,717,970 Class A voting shares to which |
(4) | Comprised of 8,846,692 Class A voting shares, of which 3,717,970 Class A voting shares, to which |
(5) | Includes 4,800,000 Class A voting shares, of which 4,000,000 Class A voting shares to which Mangrove would be entitled upon conversion of the Class B multiple voting shares held by Mangrove. The Class B multiple voting shares entitle the holder to ten votes for each Class B multiple voting share held and each Class B multiple voting share is convertible into one Class A voting share. The Grande Rousse Trust is the sole shareholder of Mangrove. |
As of May 31, 2018,2021, there were a total of 248237 holders of record of our Class A voting shares, of which 185183 were registered with addresses in the United States. Such United States record holders were, as of such date, the holders of record of approximately 74.0%82% of our outstanding Class A voting shares. The number of record holders in the United States is not representative of the number of beneficial holders nor is it representative of where such beneficial holders are resident since many of these ordinary shares were held of record by brokers or other nominees. None of our Class B multiple voting shares are held in the United States. Each Class B multiple voting share entitles the holder to ten (10) votes at all meetings of our shareholders (except meetings at which only holders of another specified class of shares are entitled to vote pursuant to the provisions of our restated articles or the Canada Business Corporations Act).
RELATED PARTY TRANSACTIONS
Management Consulting Services Agreement
In June 2011,Effective January 1, 2016, the Company entered into a management consulting services agreement with Montrovest.Gestofi S.A. (“Gestofi”), all in accordance with the Company’s Code of Conduct relating to related party transactions. Under the management consulting services agreement, Gestofi provides the Company paid Montrovest an annual retainer fee of €140,000 (equivalent to approximately $152,000 in U.S. dollars) in exchange forwith services related to the raisingobtaining of capital forfinancing, mergers and acquisitions, international expansion projects, and such other services relating to merchandising and/or marketing of the Company’s products as the Company may request. Under the agreement, The Company paid an annual retainer of €140,000 (approximately $202,000 in Canadian dollars). The original term of the agreement was until June 8, 2012December 31, 2016 and the agreement was automatically extended for successive terms of one year as neither party gave a 60 days’ notice of its intention not to renew. The yearly renewal of the agreement was subject to the review and approval of the Company’s corporate governance and nominating committee and the Board of Directors in accordance with the Company’s Code of Conduct relating to related party transactions. In April 2015,November 2018, the agreement was renewed on the same terms and conditions except that the retainer was reduced to €40,000 (approximately $61,000 in Canadian dollars). In March 2019, the agreement was renewed and amended to (i) eliminate the yearly retainer and reimburse only the out-of-pocket expenses related to the services, and (ii) allow for a success fee to be mutually agreed upon between the Company and Gestofi in the event that financing or a capital raise is achieved. In fiscal 2021, 2020, and 2019, the Company incurred expenses of nil, nil, and €40,000 (approximately nil, nil, and $61,000 in Canadian dollars) respectively under this agreement to Gestofi. In November 2020, the agreement was renewed for an additional one year period ending June 8, 2016 with the approval of the Company’s Board of Directors. Mr. Davide Barberis Canonico, a Company director, was a director of the Supervisory Board of Directors of Montrovest until April, 2018 and Mr. CarloCoda-Nunziante,one-year was the Company’s Vice President, Strategy until March 31, 2018 and was a Managing Director of Montrovest until June 30, 2012.
In fiscal year 2016 and fiscal year 2015, the Company paid €105,000 and €140,000 (approximately $116,000 and $178,000, respectively in U.S. dollars) under this agreement to Montrovest. In February 2015, the Company’s Board of Directors approved the reimbursement to Montrovest of legal fees incurred by Montrovest in connection with the issuance of a $5 million irrevocable standby letter of credit (“LC”) that Montrovest arranged for the Company’s benefit up to a total amount of CAD$75,000 (approximately $60,000 in U.S. dollars).
On November 17, 2015, the Company’s Board of Directors approved the termination of the management consulting services agreement with Montrovest effective December 31, 2015 and entering into a management consulting services agreement with Gestofi S.A. (“Gestofi”) effective January 1, 2016 on the same terms and conditions as the agreement with Montrovest, all in accordance with the Company’s Code of Conduct relating to related party transactions. In fiscal year 2018 and fiscal year 2017, the Company paid €115,000 and €140,000 (approximately $142,000 and $154,000 in U.S. dollars) respectively under this agreement to Gestofi.term.
Cash Advance Agreements
In February 2009 andThe Company has a cash advance outstanding from the Company’s controlling shareholder, Montel (formerly Montrovest), of USD$1.5 million (approximately $2 million in Canadian dollars) originally received in May 2009 from Montrovest. This cash advance was provided to the Company received $2.0 million and $3.0 million, respectively, in the form of cash advances from our controlling shareholder,by Montrovest to finance our working capital needs and for general corporate purposes. These advancesThis advance and any interest thereon areis subordinated to the indebtedness of our existing senior credit facilitiesthe Company’s Credit Facility and secured term loans and were convertible into a convertible debenture or Class A voting shares in the event of a private placement or, are repayable upon demand by Montrovest subject to the conditions stipulated in our senior credit facilities. TheseTerm Loan. This cash advances bore interest atadvance bears an annual interest rate of 16%11%, net of any withholding taxes, representing an effective interest rate of approximately 17.8%. If converted into convertible debentures or Class A voting shares, a fee of 7% of the outstanding principal amount of the cash advance would have been paid to Montrovest. In June 2011, the cash advance agreements were amended12%, and restated reducing the annual interest rate to 11%, net of any withholding taxes, representing an effective interest rate of approximately 12.2%, removing the requirement to pay a 7% fee to Montrovestis repayable upon conversion into convertible debentures or Class A voting shares and eliminating the convertibility of the cash advance into a convertible debenture or Class A voting sharesdemand by Montel once conditions stipulated in the event ofCompany’s Credit Facility permit such a private placement. The Company also amended the management subordination agreement with Montrovestpayment. At March 27, 2021 and our senior lenders, eliminating the payment of any success feeMarch 28, 2020, advances payable to Montrovest if the Company received net cash proceeds of $5Montel amounted to USD$1.5 million or more related to an equity issuance. In addition, the amended(approximately $1.9 million and restated cash advance agreements required aone-time payment of an amendment fee of $75,000$2.1 million in fiscal 2012. In August 2012, the Company repaid $3.5 million of these cash advances from the proceeds of our stock rights offering. Canadian dollars, respectively).
On July 28, 2017, the Company received a $2.5USD$2.5 million (approximately $3.3 million in Canadian dollars) loan from Montrovest.Montel, to finance its working capital needs. The loan bears interest at an annual rate of 11%, net of withholding taxes, representing an effective interest rate of approximately 12%, and is due and payable in two equal payments of $1.25USD$1.25 million (approximately $1.55 million in Canadian dollars) in each of July 2018 and July 2019. AsDuring fiscal year 2019, USD$1.25 million (approximately $1.55 million in Canadian dollars) was repaid. In May 2019, Montel granted the Company a one year extension of March 31, 2018 and March 25, 2017, advances payable to Montrovest amounted to $4.0 million and $1.5 million, respectively.
Consulting Services Agreement
On June 30, 2009, our Company’s Board of Directors approved our Company entering into a consulting services agreement with Gestofi in accordance with our Company’s Code of Conduct relating to related party transactions. Under the agreement, Gestofi undertook to assign Mr. Niccolò Rossi di Montelera as the employee of Gestofi responsible for providing the consulting services. The consulting services relate to providing advice and assistance in (i) new product development and product brand collection assortment, (ii) strategic and business development projects and financial matters, (iii) the implementation of the Company’s strategy and planning, and
(iv) such other services reasonably requested by our Chief Executive Officer or Chairman (collectively, the “Consulting Services”). The initialone-year term of the agreement began on August 1, 2009 andoutstanding balance of $1.8 million (USD $1.25 million) which was scheduled to be fully repaid in July 2019. In December 2019, the agreement may be renewed for additionalCompany obtained a new one-year terms. The agreement has been renewed yearly. The Consulting Services prior to June 2014, were provided to us for a fee of approximately CAD$13,700 ($10,324moratorium on principal repayments and as such the loan will become due in U.S. dollars) per month less any applicable taxes plus out of pocket expenses.December 2020. In June 2014, upon2020, the renewalCompany obtained a new moratorium on principal repayments and as such the loan will become due at the earliest of the agreement for an additionalone-year term, the monthly fee changedAugust 31, 2021 or 10 days following a recapitalization. At March 28, 2021 and March 30, 2020, loans payable to 13,000 Swiss francs ($13,310Montel amounted to USD$1.25 million (approximately $1.6 million and $1.8 million in U.S. dollars)Canadian dollars, respectively). On August 1, 2015, an amended and restated consulting agreement was entered into on substantially the same terms and conditions until July 31, 2016. In June 2016, the agreement was renewed for an additionalone-year term. In addition, in February 2015, our Board of Directors approved the payment of an annual fee of $12,500
Due to Gestofi for services it provided in connection with the issuance and maintenance of the Montrovest LC for our benefit. TheMerger, Montrovest’s separate legal existence ceased and as a result of such merger, the cash advance agreements as well as the loan agreement as it relates to the Consulting Services providedhave been assumed by Mr. Niccolò Rossi di Montelera was terminated effective December 31, 2016. Mr. Niccolò Rossi di Montelera is a member of the Company’s Board of Directors and is the son of Dr. Rossi di Montelera, the Company’s former Chairman and a director and chairman of the board of Gestofi.Montel.
Reimbursement Letter Agreement
In accordance with ourthe Company’s Code of Conduct related to related party transactions, in April 2011, our Corporate Governancethe Company’s corporate governance and Nominating Committeenominating committee and Board of Directors approved the reimbursement to Regaluxe S.r.l.Srl, of certain expenses, such as rent, communication, administrative support and analytical service costs, incurred in supporting the office of Dr. Lorenzo Rossi di Montelera, our formerthe Company’s then Chairman, and of Mr. Niccolò Rossi di Montelera, the Company’s Chairman of ourthe Executive Committee and ourthe Company’s current Executive Chairman of the Board, for the work performed on behalf of the Company, up to a yearly maximum of $260,000.USD$260,000 (approximately $340,000 in Canadian dollars). The yearly maximum was reduced to USD$130,000 (approximately $170,000 in Canadian dollars), and in fiscal 2019 the terms were amended so that only administrative support and analytical service costs can be reimbursed. This agreement has been renewed yearlyannually and was renewed in March 20182021 for an additional one year term.one-year term, amended to invoice in EURO (€). During fiscal 2018, 2017,2021, 2020, and 2016, we paid $245,000, $178,000,2019, the Company incurred expenses of €20,000, €46,000, and $201,000USD$127,000, (approximately $30,000, $68,000, and $167,000 in Canadian dollars) respectively to Regaluxe S.r.l.Srl under this agreement.
Distribution Agreement
In April 2011, our corporate governance and nominating committee and Board of Directors approved the Company’s entering in a Wholesale and Distribution Agreement with Regaluxe Srl. Under the agreement, Regaluxe Srl is to provide services to the Company to support the distribution of the Company’s products in Italy through authorized dealers. The initialone-year term of the agreement began on April 1, 2011. Under this agreement, the Company pays Regaluxe Srl a net price for the Company’s products equivalent to the price, net of taxes, for the products paid by retailers to Regaluxe Srl less a discount factor of 3.5%. The agreement’s initial term was until March 31, 2012, and may be renewed by mutual agreement for additional one year terms. This agreement has been renewed annually and in March 2018,2021, the agreement was renewed for an additionalone-year term. During fiscal year 20182021, fiscal 2020 and fiscal 2017,2019, the Company did not make any payments to Regaluxe Srl under this agreement.
Advisory Consulting Services Agreement
On November 15, 2016, the Company’s Board of Directors approved entering into a consulting services agreement with Gestofi effective January 1, 2017. Under the agreement, Dr. Lorenzo Rossi di Montelera is providing advice and assistance on strategic and development projects and financial matters for a total fee of $50,000 during the period from January to September 2017. In fiscal 2018, the Company paid US$33,333 in relation to this agreement. In fiscal 2017, the Company paid US$16,667 in relation to this agreement.
Consulting Agreement
On March 28, 2018, the Company’s Board of Directors approved the Company’s entry into a consulting services agreement with Carlo Coda Nunziante effective April 1, 2018. Under the agreement, Carlo Coda Nunziante, the Company’s former Vice President, Strategy, is providing advice and assistance on the Company’s strategic planning and business strategies for a total annual fee, including reimbursement of €126,801($148,853out-of-pocket expenses of €146,801 (approximately $222,000 in U.SCanadian dollars)., net of applicable taxes. Carlo Coda-Nunziante consented to a COVID-19 fee reduction of 20% for the months of April, May and June 2020, 10% for July, August and September 2020 and 20% for the month of January 2021. During fiscal 2021, 2020 and fiscal 2019, the Company incurred charges of €135,000, €154,000 and €153,000 (approximately $200,000, $229,000 and $231,000 in Canadian dollars), including applicable taxes, respectively. This agreement has been renewed in March 2021 for an additional one-year term upon the same terms and conditions.
Item 8. |
Consolidated Financial Statements
See Item 18. “Financial Statements.”
Dividend Policy
For a discussion of our dividend policy, see Item 3. “Key Information—Dividends and Dividend Policy.”
Legal Proceedings
We are from time to time involved in litigation incident to the conduct of our business. Although such litigation is normally routine and incidental, it is possible that future litigation can result in large monetary awards for compensatory or punitive damages. We believe that no litigation that is currently pending or threatened will have a material adverse effect on our financial condition.
Significant Changes
No significant changes have occurred since the date of the annual financial statements included in this Annual Report.
Item 9. |
TRADING MARKET
Effective November 15, 2005, our Class A voting shares were listed and began to trade on the NYSE American and are currently trading under the symbol “BGI.” The following table sets forth, for all recently completed full financial years since we began trading on the NYSE American, the reported high and low sale prices for the Class A voting shares:
Birks Group Inc. Highest/Lowest Stock Price for the Five Most Recent Full Financial Years | ||||
Fiscal year | Highest | Lowest | ||
2018 | $2.77 | $1.01 | ||
2017 | $5.15 | $0.35 | ||
2016 | $1.40 | $0.19 | ||
2015 | $2.15 | $0.81 | ||
2014 | $2.50 | $0.68 |
The following table sets forth, for each of the most recent six months, the reported high and low sale prices for the Class A voting shares:
Birks Group Inc. Highest/Lowest Stock Price for the Most Recent Six Months | ||||
Month | Highest | Lowest | ||
May 2018 | $2.35 | $1.12 | ||
April 2018 | $1.39 | $1.01 | ||
March 2018 | $2.77 | $1.01 | ||
February 2018 | $1.50 | $1.16 | ||
January 2018 | $1.58 | $1.28 | ||
December 2017 | $1.85 | $1.19 |
The following table sets forth, for each quarter in fiscal 2018 and 2017 and any subsequent period, the reported high and low sale prices for the Class A voting shares:
Birks Group Inc. Highest/Lowest Stock Price for Each Quarter in fiscal 2018 and 2017 and Any Subsequent Period | ||||||||
Subsequent Period | Highest | Lowest | ||||||
Quarter ended June 30, 2018 (through May 31, 2018) | $2.35 | $1.01 | ||||||
Fiscal 2018 | ||||||||
Quarter ended March 31, 2018 | $2.77 | $1.01 | ||||||
Quarter ended December 30, 2017 | $2.72 | $1.19 | ||||||
Quarter ended September 23, 2017 | $2.05 | $1.22 | ||||||
Quarter ended June 24, 2017 | $1.74 | $1.20 | ||||||
Fiscal 2017 | ||||||||
Quarter ended March 25, 2017 | $2.12 | $1.02 | ||||||
Quarter ended December 24, 2016 | $2.20 | $1.00 | ||||||
Quarter ended September 24, 2016 | $5.15 | $0.43 | ||||||
Quarter ended June 25, 2016 | $0.53 | $0.35 |
Item 10. |
ARTICLES OF INCORPORATION ANDBY-LAWS
Our Restated Articles of Incorporation do not restrict the type of business that we may carry on. A copy of our Restated Articles of Incorporation were set out in theF-4 registration statement (FileNo. 333-126936) that was filed with the SEC on July 27, 2005 and subsequently amended on September 8, 2005, September 21, 2005 and September 29, 2005, and which we incorporate by reference. A copy of ourBy-law No. One is contained as an exhibit to the Form20-F that we filed with the SEC on July 3, 2012, and which we incorporate by reference. Additionally, certain rights of our shareholders pursuant to our Restated Articles of Incorporation, ourBy-laws and theCanada Business Corporations Act were set out in theF-4 registration statement (FileNo. 333-126936) that was filed with the SEC on July 27, 2005, and which we incorporate by reference herein and we refer you to the headings therein entitled “Description of Birks Capital Stock” and “Comparison of Stockholder Rights.”
On April 19, 2012, our Board of Directors approved an amendment to ourBy-laws to, among other things, add the title and description of the Vice Chairman position, revise the declaration of dividends section of theBy-laws, and add a banking and borrowing arrangements section to the By-laws. Under Canadian law, the amendment to our By-laws had to be ratified by the shareholders of the Company. At our 2012 Annual and Special Meeting of Shareholders, our shareholders ratified the amendment to ourBy-laws.
On September 12, 2013, at our Annual Meeting of Shareholders, our shareholders approved articles of amendment to our Restated Articles of Incorporation to change our corporate name to Birks Group Inc. A copy of the articles of amendment is filed with our Annual Report on Form20-F filed with the SEC on July 25, 2014.
On September 24, 2014, at our Annual Meeting of Shareholders, our shareholders approved articles of amendment to our Restated Articles of Incorporation to allow our board of directors, at any time and from time to time, to issue preferred shares for an aggregate consideration to be received by the Company of up to five million Canadian dollars (CAD$($5,000,000) which shall be subject to a 5% dividend limitation as contained in the Restated Articles of Incorporation. A copy of the articles of amendment is filed with our Annual Report on Form20-F filed with the SEC on June 26, 2015.
MATERIAL CONTRACTS
We have not entered into any material contract other than in the ordinary course of business and other than those described below or in Items 4, 5, 7 and 19 of this Annual Report on Form20-F.
Employment Agreements
Jean-Christophe Bédos
On January 4, 2012, we entered into an employment agreement, or the “Agreement”, with Jean-Christophe Bédos, who became the President & Chief Executive Officer effective April 1, 2012, and prior to that was our Chief Operating Officer. The Agreement provides Mr. Bédos with a base salary of CAD$700,000 ($561,572 in U.S. dollars based on foreign exchange rates as of May 31, 2015),$700,000 an annual cash bonus set at a minimum of CAD$282,500 ($226,635 in U.S. dollars based on foreign exchange rates as of May 31, 2015)$282,500 for fiscal year ended March 30, 2013, of which CAD$141,250 ($136,738 in U.S. dollars based on foreign exchange rates as of May 31, 2012)$141,250 was paid during fiscal 2012 and CAD$141,250 ($130,184 in U.S. dollars based on foreign exchange rates as of May 31, 2014)$141,250 was paid in fiscal 2014, an annual target cash bonus of 85% of base salary based on achievement of a targeted level of performance and performance criteria set by the Company, an option to purchase 150,000 shares of the Company’s Class A voting shares which vested over three years and other health and retirement benefits. Effective October 1, 2015, Mr. Bédos’ base salary was increased to CAD$730,000 ($557,209 in U.S. dollars based on foreign exchange rates as of May 31, 2016). Effective$730,000, and $750,000, effective October 1, 2015 and November 1, 2016, Mr. Bédos’ base salary was increased to CAD$750,000 ($560,831 in U.S. dollars).respectively. If Mr. Bédos is terminated without “cause” or resigns for “good reason,” as these terms are defined in the Agreement, the Agreement provides that Mr. Bédos will receive (i) any earned and accrued but unpaid base salary, (ii) up to 12 months of salary in lieu of further salary or severance payments, which may be increased by one additional month after five years of service for each additional year of service thereafter, up to a maximum of eighteen months after ten years of service, (iii) certain health benefits for the period that the severance will be payable in, and (iv) his bonus through the date of termination and up to twelve months average annual cash bonus (based on the average annual cash bonus paid to him over the previous three fiscal years). Mr. Bédos is prohibited from competing with us during his employment and for a period of twelve-months thereafter.
EXCHANGE CONTROLS
There are currently no laws, decrees, regulations or other legislation in Canada that restricts the export or import of capital or that affects the remittance of dividends, interest or other payments tonon-resident holders of our securities other than withholding tax requirements. There is no limitation imposed by Canadian law or by our Restated Articles of Incorporation or our other organizational documents on the right of anon-resident of Canada to hold or vote our Class A voting shares, other than as provided in Investment Canada Act.
The Investment Canada Act requires notification and, in certain cases, advance review and approval by the federal minister of Innovation, Science and Economic Development of the acquisition by a“non-Canadian” of “control of a Canadian business”, all as defined in the Investment Canada Act. Generally, the threshold for review will be higher in monetary terms, and in certain cases an exemption will apply, for an investor ultimately controlled by persons who are WTO investors or trade agreement investors, in each case within the meaning of the Investment Canada Act. The Investment Canada Act also provides for review of investments in Canada, including by acquisition of the whole or part of any entity with operations in Canada, if the aforementioned Minister determines that such an investment may be injurious to national security.
TAXATION
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF OWNING AND DISPOSING OF
BIRKS CLASS A VOTING SHARES
The following discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the Code), applicable Treasury regulations, administrative rulings and pronouncements and judicial decisions currently in effect, all of which could change. Any change, which may be retroactive, could result in U.S. federal income tax consequences different from those discussed below. The discussion is not binding on the Internal Revenue Service, and there can be no assurance that the Internal Revenue Service will not disagree with or challenge any of the conclusions described below.
Except where specifically noted, the discussion below does not address the effects of any state, local ornon-U.S. tax laws (or other tax consequences such as estate or gift tax consequences). The discussion below relates to persons who hold Birks Group Class A voting shares as capital assets within the meaning of Section 1221 of the Code. The
tax treatment of those persons may vary depending upon the holder’s particular situation, and some holders may be subject to special rules not discussed below. Those holders would include, for example:
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banks, insurance companies, trustees and mutual funds;
tax-exempt organizations;
financial institutions;
pass-through entities and investors in pass-through entities;
traders in securities who elect to apply a mark-to-market method of accounting;
broker-dealers;
holders who are not U.S. Holders (as defined below);
persons whose “functional currency” is not the U.S. dollar;
holders who are subject to the alternative minimum tax; and
holders of Birks Group Class A voting shares who own 5% or more of either the total voting power or the total value of the outstanding Class A voting shares of Birks Group.
Holders should consult their own tax advisors concerning the U.S. federal income tax consequences of the ownership of Birks Group Class A voting shares in light of their particular situations, as well as any consequences arising under the laws of any other taxing jurisdiction.
As used in this document, the term “U.S. Holder” means a beneficial holder of Birks Group Class A voting shares that is (1) an individual who is a U.S. citizen or U.S. resident alien, (2) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the U.S. or any political subdivision of the U.S., (3) an estate which is subject to U.S. federal income tax on its worldwide income regardless of its source or (4) a trust (x) that is subject to primary supervision of a court within the U.S. and the control of one or more U.S. persons as described in section 7701(a)(30) of the Code or (y) that has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
If a partnership holds Birks Group Class A voting shares, the U.S. federal income tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Partners of partnerships that hold Birks Group Class A voting shares should consult their tax advisors regarding the U.S. federal income tax consequences to them.
Dividends and Distributions
Subject to the passive foreign investment company (PFIC) rules discussed below, the gross amount of dividends paid to U.S. Holders of our Class A voting shares, including amounts withheld to reflect Canadian withholding taxes, will be treated as dividend income to these U.S. Holders, to the extent paid out of current or accumulated earnings and profits, as determined under U.S. federal income tax principles. This income will be includable in the gross income of a U.S. Holder on the day actually or constructively received by the U.S. Holder. Dividends generally will not be eligible for the dividends received deduction allowed to corporations upon the receipt of dividends distributed by U.S. corporations.
Subject to certain conditions and limitations, Canadian withholding taxes on dividends may be treated as foreign taxes eligible for credit against a U.S. Holder’s U.S. federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on our Class A voting shares will be treated as income from sources outside the U.S. and generally will constitute “passive income.” Special rules apply to certain individuals whose foreign source income during the taxable year consists entirely of “qualified passive income” and whose creditable foreign taxes paid or accrued during the taxable year do not exceed $300 ($600 in the case of a joint return). U.S. Holders should consult their tax advisors to determine their eligibility to use foreign tax credits.
To the extent that the amount of any distribution exceeds our current and accumulated earnings and profits for a taxable year, the distribution first will be treated as atax-free return of capital, causing a reduction in the adjusted basis of our Class A voting shares (thereby increasing the amount of gain, or decreasing the amount of loss, to be recognized by the U.S. Holder on a subsequent disposition of the Class A voting shares), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a sale or exchange.
With respect to certain U.S. Holders who are not corporations, including individuals, certain dividends received from a qualified foreign corporation may be subject to reduced rates of taxation. A “qualified foreign corporation” includes a foreign corporation that is eligible for the benefits of a comprehensive income tax treaty with the United States which the U.S. Treasury determines to be satisfactory for these purposes and which includes an exchange of information program. U.S. Treasury guidance indicates that the current income tax treaty between Canada and the U.S. meets these requirements, and we believe we are eligible for the benefits of that treaty. In addition, a foreign corporation is treated as a qualified foreign corporation with respect to dividends received from that corporation on shares that are readily tradable on an established securities market in the U.S. Our Class A voting shares, which are listed on the NYSE American, should be considered readily tradable on an established securities market in the U.S. Individuals that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of the trading status of our Class A voting shares. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related
payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. U.S. Holders should consult their own tax advisors regarding the application of these rules given their particular circumstances. The rules governing the foreign tax credit are complex. Certain U.S. Holders of our Class A voting shares may not be able to claim a foreign tax credit with respect to amounts withheld for Canadian withholding taxes. U.S. Holders are urged to consult their tax advisors regarding the availability of the foreign tax credit under their particular circumstances.
Sale or Exchange of Class A Voting Shares
For U.S. federal income tax purposes, subject to the rules relating to PFICs described below, a U.S. Holder generally will recognize taxable gain or loss on any sale or exchange of our Class A voting shares in an amount equal to the difference between the amount realized for our Class A voting shares and the U.S. Holder’s tax basis in such shares. This gain or loss will be capital gain or loss and generally will be treated as U.S. source gain or loss. Long-term capital gains recognized by certain U.S. Holders who are not corporations, including individuals, generally will be subject to a maximum rate of U.S. federal income tax of currently 23.8%, which includes the 3.8% Medicare surtax imposed by Section 1411 of the Code. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company
We believe that our Class A voting shares should not be treated as stock of a PFIC for U.S. federal income tax purposes, and we expect to continue our operations in such a manner that we will not be a PFIC. In general, a company is considered a PFIC for any taxable year if either (i) at least 75% of its gross income is passive income or (ii) at least 50% of the value of its assets is attributable to assets that produce or are held for the production of passive income. The 50% of value test is based on the average of the value of our assets for each quarter during the taxable year. If we own at least 25% by value of another company’s stock, we will be treated, for purposes of the PFIC rules, as owning our proportionate share of the assets and receiving our proportionate share of income of the other company. Based on the nature of our income, assets and activities, and the manner in which we plan to operate our business in future years, we do not expect that we will be classified as a PFIC for any taxable year.
If, however, we are or become a PFIC, U.S. Holders could be subject to additional U.S. federal income taxes on gain recognized with respect to our Class A voting shares and on certain distributions, plus an interest charge on certain taxes treated as having been deferred by the U.S. Holder under the PFIC rules.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to dividends in respect of our Class A voting shares or the proceeds received on the sale, exchange, or redemption of our Class A voting shares paid within the United States (and in certain cases, outside of the U.S.) to U.S. Holders other than certain exempt recipients (such as corporations), and a 24% backup withholding tax may apply to these amounts if the U.S. Holder fails to provide an accurate taxpayer identification number, to report dividends required to be shown on its U.S. federal income tax returns or, in certain circumstances, to comply with applicable certification requirements. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a refund or credit against the U.S. Holder’s U.S. federal income tax liability, provided that the required information or appropriate claim for refund is furnished to the Internal Revenue Service in a timely manner.
Certain Information Reporting Obligations
Certain U.S. Holders are required to report their ownership of specified foreign financial assets, including stock or securities issued bynon-U.S. entities, subject to exceptions, by including a completed IRS Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they own such assets. U.S. Holders are urged to consult their own tax advisors regarding information reporting requirements relating to the ownership of Class A voting shares.
MATERIAL CANADIAN FEDERAL INCOME TAX CONSEQUENCES OF THE OWNERSHIP AND DISPOSITION OF OUR CLASS A VOTING SHARES
The following discussion is a summary of the material Canadian federal income tax considerations under the Income Tax Act (Canada) and the regulations adopted thereunder (referred to in this Form20-F as the “Canadian Tax Act”) of the ownership of our Class A voting shares, generally applicable to holders of our Class A voting shares who, for purposes of the Canadian Tax Act and at all relevant times, are not (and are not deemed to be) resident in Canada, are the beneficial owners of our Class A voting shares, hold our Class A voting shares as capital property, deal at arm’s length and are not affiliated with Birks Group, and who do not use or hold (and are not deemed to use or hold) Class A voting shares in connection with carrying on business or part of a business in Canada (referred to in this Form20-F as“Non-resident Holders”). This discussion does not apply toNon-resident Holders that are insurers that carry on an insurance business in Canada and elsewhere or an “authorized foreign bank” (as defined under the Canadian Tax Act).
This summary is based upon the current provisions of the Canadian Tax Act, the current provisions of the Canada-United States Income Tax Convention (1980), as amended, if applicable (referred to in this Form20-F as the “Convention”), all specific proposals to amend the Canadian Tax Act publicly announced by the Minister of Finance of Canada prior to the date hereof (referred to in this Form20-F as the “Tax Proposals”) and the current published administrative and assessing practices of the Canada Revenue Agency. This summary assumes that the Tax Proposals will be enacted substantially as proposed and does not otherwise take into account or anticipate any change in law or administrative and assessing practices, whether by legislative, governmental or judicial action, although no assurance can be given in these respects. This summary does not take into account or consider any provincial, territorial or foreign income tax legislation or considerations. For purposes of the Canadian Tax Act, all amounts relevant in computing aNon-resident Holder’s liability under the Canadian Tax Act must be computed in Canadian dollars. Amounts denominated in a currency other than Canadian dollars (including adjusted cost base and proceeds of disposition) must be converted into Canadian dollars based on the prevailing exchange rate at the relevant time.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice toNon-resident Holders of our Class A voting shares. Accordingly,Non-resident Holders of our Class A voting shares should consult their own tax advisors with respect to their particular circumstances.
Dividends on Our Class A Voting Shares
Dividends paid or credited (or deemed to have been paid or credited) on our Class A voting shares to aNon-resident Holder will be subject to Canadian withholding tax of 25% of the gross amount of those dividends (subject to reduction in accordance with an applicable income tax convention between Canada and theNon-resident Holder’s country of residence). In the case of aNon-resident Holder who is a resident of the U.S. for purposes of the Convention, is entitled to the benefits of the Convention (referred to in this Form20-F as a “U.S. Holder”) and is the
beneficial owner of the dividend, the rate of withholding tax will generally be reduced to 15% or, if theNon-resident Holder is a corporation that owns at least 10% of our voting shares, to 5%.
Disposition of Our Class A Voting Shares
ANon-resident Holder will not be subject to tax under the Canadian Tax Act in respect of any capital gain realized by thatNon-resident Holder on a disposition (or deemed disposition) of a Class A voting share, unless the Class A voting share constitutes “taxable Canadian property” (as defined in the Canadian Tax Act) of theNon-resident Holder at the time of disposition and theNon-resident Holder is not entitled to relief under an applicable income tax convention between Canada and theNon-resident Holder’s country of residence. If at the time of such disposition the Class A voting shares are listed on a “designated stock exchange” (which includes the NYSE American), the Class A voting shares will generally not constitute taxable Canadian property of aNon-resident Holder unless (A) at any time during the60-month period that ends at the time the Class A voting shares are disposed of, both (i) 25% or more of the issued shares of any class of the capital stock of the Corporation were owned by or belonged to one or any combination of (a) theNon-resident Holder, (b) persons with whom theNon-resident Holder did not deal at arm’s length, and (c) partnerships in which theNon-resident Holder or a person referred to in (b) holds a membership interest, directly or indirectly, through one or more partnerships, and (ii) more than 50% of the fair market value of the Class A voting shares was derived, directly or indirectly, from one or any combination of real or immovable property situated in Canada, “Canadian resource properties”, “timber resource properties” (as such terms are defined under the Canadian Tax Act) or options in respect of,
interests in, or civil law rights in, any such properties, or (B) the Class A voting shares are otherwise deemed to be taxable Canadian property. Generally, to the extent that the Class A voting share are no longer listed on a “designated stock exchange” at the time of their disposition, the above-listed criteria (with the exception of (i)) will apply to determine if the Class A voting shares are “taxable Canadian property”.
As long as Class A voting shares are listed on a “recognized stock exchange” (which includes the NYSE American), aNon-resident Holder who disposes of Class A voting shares that are taxable Canadian property will not be required to satisfy the obligations imposed under section 116 of the Canadian Tax Act.
DOCUMENTS ON DISPLAY
We file reports, including Annual Reports on Form20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. You may read and copy any materials filed with the SEC at the following location of the SEC, Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at1-800-SEC-0330 for further information on the public reference room. Filings we make electronically with the SEC are also available to the public on the Internet at the SEC’s website athttp://www.sec.gov.
Item 11. |
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We are exposed to various market risks. Market risk is the potential loss arising from adverse changes in market prices and rates. We have not entered into derivative or other financial instruments for trading or speculative purposes.
Interest Rate Risk
We are exposed to market risk from fluctuations in interest rates. Borrowing under the credit facilityCredit Facility and the term loansTerm Loan from Investissement QuébecSLR bear interest at floating rates, which are based on LIBORCDOR or prime plus a fixed additional interest rate. As of March 31, 2018,27, 2021, we have not hedged these interest rate risks. As of March 31, 2018,27, 2021, we had approximately $30.4$65.7 million of floating-rate debt. Accordingly, our net income will be affected by changes in interest rates. Assuming a 100 basis point increase or decrease in the interest rate under our floating rate debt, our interest expense on an annualized basis would have increased or decreased, respectively, by approximately $0.3$0.7 million.
Currency Risk
While we report our financial resultsThe Company has changed its reporting currency in fiscal 2019 from U.S. dollars to Canadian dollars for the period commencing April 1, 2018 in order to better reflect the fact that subsequent to the Company’s divestiture of its former wholly-owned subsidiary, Mayor’s Jewelers Inc. on October 23, 2017, its business is primarily conducted in Canada, and a substantial portion of our sales are earned in Canadian dollars.Non-Canadian currency transactions and assets and liabilities subject us to foreign currency risk. For purposes of our financial reporting, our financial statements are reported in U.S. dollars by translating, where
necessary, net sales andits revenues, expenses, from Canadian dollars at the average exchange rates prevailing during the period, while assets, and liabilities are translated atyear-end exchange rates, with the effect of such translation recordeddenominated in accumulated other comprehensive income. As a result, for purposes of our financial reporting, foreign exchange gains or losses recorded in earnings relate tonon-Canadian dollar transactions. Management is considering the possibility of reporting our financial results in Canadian dollars as of fiscal 2019. If this change is not adopted, our reported earnings could fluctuate materially as a result of foreign exchange translation gains or losses.$CAD. The Company’s functional currency remains $CAD.
To mitigate the impact of foreign exchange volatility on our earnings, from time to time we may enter into agreements to fix the exchange rate of U.S. dollars to Canadian dollars. For example, we may enter into agreements to fix the exchange rate to protect the principal and interest payments on our U.S. dollar denominated debt and other liabilities held in our Canadian operation. If we do so, we will not benefit from any increase in the value of the Canadian dollar compared to the U.S. dollar when these payments become due. As of March 31, 2018,27, 2021, we had not hedged these foreign exchange rate risks. As of March 31, 2018,27, 2021, we had approximately $1.7$21.4 million of net liabilities subject to foreign exchange rate risk related to changes in the exchange rate between the U.S. dollar and Canadian dollar, which would impact the level of our earnings if there were fluctuations in U.S. and Canadian dollar exchange rate. Assuming a 100 basis point strengthening or weakening of the Canadian dollar in relationship to the U.S. dollar, as of March 31, 2018,28, 2020, our earnings would have increased or decreased, respectively, by approximately $0.2 million. This analysis does not consider the impact of fluctuations in U.S. and Canadian dollar exchange rates on the translation of Canadian dollar results into U.S. dollars. Changes in the exchange rates of Canadian dollars to U.S. dollars could also impact our Canadian sales and gross margin if the Canadian dollar strengthens significantly and impacts our Canadian consumers’ behavior.
Commodity Risk
The nature of our operations results in exposure to fluctuations in commodity prices, specifically diamonds, platinum, gold and silver. We do not currently use derivatives to hedge these risks. Our retail sales and gross margin could be materially impacted if prices of diamonds, platinum, gold or silver rise so significantly that our consumers’ behavior changes or if price increases cannot be passed onto our customers.
Item 12. |
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Not applicable.
Item 13. |
Not applicable.
Item 14. |
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Not applicable.
Item 15. |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer to allow timely decisions regarding required disclosure. Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures, as defined under Exchange Act Rule13a-15(e), as of the end of the period covered by this Annual Report on Form20-F. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2018,27, 2021, our disclosure controls and procedures, as defined under Exchange Act Rule13a-15(e), were effective.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules13a-15(f) and15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the U.S. Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets,assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to consolidated financial statements preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual Report based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of our internal control over financial reporting and testing of the operational effectiveness of our internal control over financial reporting. Based on that assessment, our Chief Executive Officer and Chief Financial Officer concluded that as of March 31, 2018,27, 2021, our internal control over financial reporting was effective.
This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal controls over financial reporting. As anon-accelerated filer, our report was not subject to attestation by our independent registered public accounting firm pursuant to rules of the SEC that permit us to provide only our report on internal controls over financial reporting in this Annual Report.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the period covered by this Annual Report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 16A. |
The Board of Directors determined that Frank Di Tomaso, an independent director, meets the requirements to be designated an “audit committee financial expert” as such term is defined by the SEC. See “Item 6. Directors, Senior Management and Employees—Board Practices.”
Item 16B. | Code of Ethics |
We have adopted a code of ethics, within the meaning of this Item 16B of Form20-F under the Exchange Act. Our code of ethics applies our Chief Executive Officer, Chief Financial Officer, and Controller. Our code of ethics is available on our website atwww.birksgroup.comwww.birks.com.If.If we amend the provisions of our code of ethics that apply to our Chief Executive Officer, Chief Financial Officer and persons performing similar functions, or if we grant any waiver of such provisions, we will disclose such amendment or waiver on our website at the same address. We also have a similar code of ethics that applies to our financial directors. The Company has also adopted a Code of Conduct that applies to all employees of the Company.
Item 16C. Principal Accountant Fees and Services
Item 16C. | Principal Accountant Fees and Services |
During fiscal 20182021 and fiscal 2017,2020, we retained KPMG LLP, our independent registered public accountant, to provide services in the following categories and amounts:
Audit Fees
The aggregate fees billed by KPMG LLP for professional services rendered by KPMG LLP for the audit and interim review of our consolidated financial statements was CAD$438,000 ($340,830 in U.S. dollars)$552,338 in fiscal 20182021 and CAD$483,700 ($368,141 in U.S. dollars)$502,622 in fiscal 2017.2020.
Audit Related Fees
During fiscal 20182021 and 2017,fiscal 2020, KPMG LLP provided audit related services for a total amount of CAD$5,000 ($3,891 in U.S. dollars)nil and CAD$9,325 ($7,097 in U.S. dollars),nil, respectively.
Tax Fees
During fiscal 20182021 and fiscal 2017,2020, KPMG LLP provided tax advisory services for a total amount of CAD$28,000 ($21,788 in U.S. dollars)nil, and CAD$139,252 ($105,984 in U.S. dollars),$26,287, respectively.
All Other Fees
During fiscal 2018,2021 and fiscal 2020, KPMG LLP provided advisory services for a total amount of CAD$4,000 ($3,113 in U.S. dollars). Infiscal 2017, KPMG LLP did not provide other services.nil and nil, respectively.
Pre-Approval Policies and Procedures
The audit committee has established apre-approval policy as described in Rule2-01(c)(7)(i) of RegulationS-X. The audit committee approves in writing, in advance, any audit ornon-audit services provided to Birks Group by the independent accountants that are not specifically disallowed by the Sarbanes-Oxley Act of 2002. None of the services described in Item 16C were approved by the audit committee pursuant toRule 2-01(c)(7)(i)(C).
Item 16D. Exemptions from the Listing Standards for Audit Committees
Item 16D. | Exemptions from the Listing Standards for Audit Committees |
Not applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Item 16E. | Purchases of Equity Securities by the Issuer and Affiliated Purchasers |
We did not, nor did any affiliated purchaser, purchase any of our equity securities during fiscal 2018.2021.
Item 16F. |
Not applicable.
Item 16G. Corporate Governance
Item 16G. | Corporate Governance |
Our securities are listed on the NYSE American. There are no significant ways in which our corporate governance practices differ from those followed by domestic companies under the listing standards of that exchange except for proxy delivery requirements. The NYSE American requires the solicitation of proxies and delivery of proxy statements for all shareholder meetings, and requires that these proxies be solicited pursuant to a proxy statement that conforms to the proxy rules of the U.S. Securities and Exchange Commission. As a foreign private issuer, the Company is exempt from the proxy rules set forth in Sections 14(a), 14(b), 14(c) and 14(f) of the Act. The Company solicits proxies in accordance with applicable rules and regulations in Canada.
Item 16H. Mine Safety Disclosure
Item 16H. | Mine Safety Disclosure |
Not applicable.
Item 17. |
Not applicable .applicable.
Item 18. |
The financial statements required by this item are found at the end of this Annual Report beginning on pageF-1.
Exhibit | Description of Document | |
1.1 | ||
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1.3 | ||
1.4 | ||
2.1 |
4.1 | ||
4.2 | ||
4.3 | ||
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4.39 | Employment Agreement dated December 18, 2019 entered into between Birks Group Inc. and Katia Fontana. Incorporated by reference from the Birks Group Inc. Form 20-F filed with the SEC on July 8, 2020. | |
4.40 | Description of Capital Stock. Incorporated by reference from the Birks Group Inc. Form 20-F filed with the SEC on July 8, 2020. | |
8.1* | Subsidiaries of Birks Group Inc. | |
12.1* | ||
12.2* | Certification of Chief Financial Officer pursuant to Exchange ActRules 13a-14(a) and15d-14(a). | |
13.1* | ||
13.2* | ||
15.1* | ||
101.INS* | XBRL Instance Document* | |
101.SCH* | XBRL Taxonomy Extension Schema Document* | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document* |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document* | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document* | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document* |
*
* | Filed herewith. |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
BIRKS GROUP INC. | ||||||
Date: | /s/ Katia Fontana | |||||
Katia Fontana, | ||||||
Vice President and Chief Financial Officer |
INDEX TO FINANCIAL STATEMENTS
Page | ||||
F-2 | ||||
Consolidated Balance Sheets as of March | ||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm
To the ShareholdersStockholders and the Board of Directors of
Birks Group Inc.:
Opinion on theConsolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Birks Group Inc. (the “Company”) as of March 31, 201827, 2021 and March 25, 2017,28, 2020, the related consolidated statements of operations, other comprehensive income (loss), changes in stockholders’ equity (deficiency), and cash flows for the years ended March 31, 2018,27, 2021, March 25, 201728, 2020 and March 26, 2016,30, 2019, and the related notes (collectively, referred to as the “financial statements”)consolidated financial statements).
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 201827, 2021 and March 25, 2017,28, 2020, and itsthe results of its operations and its cash flows for the years ended March 31, 2018,27, 2021, March 25, 201728, 2020 and March 26, 2016,30, 2019, in conformity with U.S. generally accepted accounting principles.
Change in Accounting Principle
As discussed in Note 2(h) to the consolidated financial statements, the Company has changed its method of accounting for leases as of March 31, 2019 due to the adoption of Accounting Standards Codification Topic 842 Leases, using a modified retrospective adoption approach.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’sthese consolidated financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purposespurpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Assessment of the Company’s ability to continue as a going concern
As discussed in Note 1 to the consolidated financial statements, the Company prepares its consolidated financial statements on a going concern basis. The Company believes that it will be able to adequately fund its operations and meet its cash flow requirements for at least the next twelve months from the date of issuance of these financial statements. The Company funds its operations primarily through committed financing under its senior secured credit facility and its senior secured term loan. The Company’s ability to meet its cash flow requirements in order to fund its operations is dependent upon its ability to attain profitable operations and/or continued adherence to the terms of its committed financings, obtain favorable payment terms from suppliers, as well as to maintain specified excess availability levels under its senior secured credit facility and its senior secured term loan. The Company is required to adhere to under both its senior secured credit facility and its senior secured term loan, a financial covenant that requires that the Company maintain a minimum excess availability of not less than $8.5 million. Management estimated and forecasted cash flows and excess availability levels under various scenarios for at least the next twelve months from the date the financial statements were authorized for issuance.
We identified the assessment of the Company’s ability to continue as a going concern and related disclosures as a critical audit matter. There was a high degree of subjectivity and significant auditor judgment involved in assessing management’s cash flow forecast under various scenarios, specifically forecasted sales and gross margins, operating costs, favorable payment terms from suppliers, and excess availability levels.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design of the internal control related to management’s going concern assessment. We assessed management’s ability to forecast by comparing prior year forecasts to actual results and excess availability achieved. We assessed management’s estimated forecasted sales, gross margins and operating costs used in management’s forecasted cash flows and excess availability levels under various scenarios. We evaluated the assumptions in the forecasted cash flows and the various scenarios, related to cost reductions and obtaining favorable payment terms from suppliers by understanding the nature of management’s plans and whether they were probable. We examined the results of operations and excess availability levels after year-end, up to the date of our auditor’s report, and compared them to management’s forecasted excess availability levels. We assessed the adequacy of the disclosures related to the application of the going concern assessment.
Evaluation of the reserve for slow-moving finished goods inventories
As discussed in Note 4 to the consolidated financial statements, the inventories reserve balance as of March 27, 2021 is $1,938 thousand, which includes the reserve for slow-moving finished goods inventories. As discussed in Note 2(e), inventories are valued at the lower of average cost or net realizable value, which is the estimated selling price in the ordinary course of business. The reserve for slow-moving finished goods inventories is equal to the difference between the cost of inventories and the estimated selling prices, resulting in the expected gross margin. There is estimation uncertainty in relation to the identification of slow-moving finished goods inventories which are based on certain criteria established by the Company. The criteria includes operational decisions by management to discontinue ordering the inventories based on sales trends, market conditions, and the aging of the inventories. Estimation uncertainty also exists in determining the expected selling prices and associated gross margins through normal sales channels, which are based on assumptions about future demand and market conditions for those slow-moving inventories.
We identified the evaluation of the reserve for slow-moving finished goods inventories as a critical audit matter. A higher degree of auditor judgement and increased audit effort was required to evaluate the identification of the slow-moving finished goods inventories based on the Company’s established criteria, and the expected selling prices for those slow-moving finished goods inventories.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the slow-moving inventory reserve, including the control related to the identification of the slow-moving finished goods inventories based on the Company’s established criteria. We evaluated the criteria used by the Company to identify slow-moving finished goods inventories by considering the aging of finished goods inventories on-hand, historic inventory turnover, historic sales trends and historic gross margin analysis. We evaluated the Company’s criteria and assumptions used in the reserve for slow-moving finished goods inventories by analyzing the reserve trends, movements of the specific inventory status year-over-year and business plans, and the impact of changes on the reserve.
We compared the estimated selling price and the associated gross margins utilized in the prior year to the actual gross margin in the current year to evaluate the Company’s ability to accurately estimate the reserve. We developed an expectation of the slow-moving reserve using historic inventory activity and gross margin rates and compared our expectation to the amount recorded by the Company. We compared the reserve balances at year-end to sales and gross margins subsequent to year-end.
/s/ KPMG LLP*LLP
We have served as the Company’s auditor since 2000.
Montreal, Canada
June 29, 201817, 2021
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© 2021 KPMG LLP, |
BIRKS GROUP INC.
As of | ||||||||
March 31, 2018 | March 25, 2017* | |||||||
(In thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 779 | $ | 1,944 | ||||
Accounts receivable and other receivables | 4,817 | 2,554 | ||||||
Inventories | 65,793 | 65,894 | ||||||
Prepaids and other current assets | 3,824 | 1,411 | ||||||
Assets of disposal group | - | 77,962 | ||||||
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Total current assets | 75,213 | 149,765 | ||||||
Property and equipment | 15,067 | 11,606 | ||||||
Intangible assets and other assets | 3,007 | 2,707 | ||||||
Assets of disposal group | - | 14,860 | ||||||
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Totalnon-current assets | 18,074 | 29,173 | ||||||
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Total assets | $ | 93,287 | $ | 178,938 | ||||
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Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Bank indebtedness | $ | 28,640 | $ | 44,840 | ||||
Accounts payable | 20,457 | 18,475 | ||||||
Accrued liabilities | 5,807 | 4,951 | ||||||
Current portion of long-term debt | 2,611 | 2,393 | ||||||
Liabilities of disposal group | - | 57,628 | ||||||
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Total current liabilities | 57,515 | 128,287 | ||||||
Long-term debt | 3,757 | 4,057 | ||||||
Other long-term liabilities | 6,828 | 5,040 | ||||||
Liabilities of disposal group | - | 28,758 | ||||||
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Total long-term liabilities | 10,585 | 37,855 | ||||||
Commitments and Contingencies | ||||||||
Stockholders’ equity: | ||||||||
Class A common stock – no par value, | 30,988 | 30,988 | ||||||
Class B common stock – no par value, | 38,613 | 38,613 | ||||||
Preferred stock – no par value, | – | – | ||||||
Additionalpaid-in capital | 16,358 | 16,372 | ||||||
Accumulated deficit | (62,222) | (73,921) | ||||||
Accumulated other comprehensive income | 1,450 | 744 | ||||||
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Total stockholders’ equity | 25,187 | 12,796 | ||||||
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Total liabilities and stockholders’ equity | $ | 93,287 | $ | 178,938 | ||||
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*Retrospectively revised (see note 18)
As of | ||||||||
March 27, 2021 | March 28, 2020 | |||||||
(In thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 1,807 | $ | 565 | ||||
Accounts receivable and other receivables | 7,307 | 6,019 | ||||||
Inventories | 97,789 | 101,899 | ||||||
Prepaids and other current assets | 2,044 | 2,007 | ||||||
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Total current assets | 108,947 | 110,490 | ||||||
Long-term receivables | 5,673 | 4,538 | ||||||
Property and equipment | 24,496 | 26,613 | ||||||
Operating lease right-of-use asset | 57,670 | 64,069 | ||||||
Intangible assets and other assets | 4,894 | 4,942 | ||||||
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Total non-current assets | 92,733 | 100,162 | ||||||
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Total assets | $ | 201,680 | $ | 210,652 | ||||
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Liabilities and Stockholders’ Equity (Deficiency) | ||||||||
Current liabilities: | ||||||||
Bank indebtedness | $ | 53,387 | $ | 58,035 | ||||
Accounts payable | 37,975 | 48,183 | ||||||
Accrued liabilities | 11,209 | 4,661 | ||||||
Current portion of long-term debt | 2,960 | 64 | ||||||
Current portion of operating lease liabilities | 6,298 | 5,823 | ||||||
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Total current liabilities | 111,829 | 116,766 | ||||||
Long-term debt | 23,062 | 16,217 | ||||||
Long-term portion of operating lease liabilities | 66,713 | 72,636 | ||||||
Other long-term liabilities | 1,498 | 1,623 | ||||||
|
|
|
| |||||
Total long-term liabilities | 91,273 | 90,476 | ||||||
Stockholders’ equity (deficiency): | ||||||||
Class A common stock – no par value, unlimited shares authorized, issued and outstanding 10,610,973 (10,252,911 as of March 28, 2020) | 37,361 | 35,613 | ||||||
Class B common stock – no par value, unlimited shares authorized, issued and outstanding 7,717,970 | 57,755 | 57,755 | ||||||
Preferred stock – no par value, unlimited shares authorized, none issued | — | — | ||||||
Additional paid-in capital | 18,259 | 19,131 | ||||||
Accumulated deficit | (114,700 | ) | (108,862 | ) | ||||
Accumulated other comprehensive loss | (97 | ) | (227 | ) | ||||
|
|
|
| |||||
Total stockholders’ equity (deficiency) | (1,422 | ) | 3,410 | |||||
|
|
|
| |||||
Total liabilities and stockholders’ equity (deficiency) | $ | 201,680 | $ | 210,652 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements
On behalf of the Board of Directors:
/s/ Jean-Christophe Bédos |
| /s/ Frank Di Tomaso | ||
Jean-Christophe Bédos, Director | Frank Di Tomaso, Director |
BIRKS GROUP INC.
Consolidated Statements of Operations
Fiscal Year Ended | ||||||||||||
March 31, 2018 | March 25, 2017* | March 26, 2016* | ||||||||||
(In thousands, except per share amounts) | ||||||||||||
Net sales | $ | 114,378 | $ | 116,436 | $ | 128,651 | ||||||
Cost of sales | 70,824 | 69,654 | 75,682 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Gross profit | 43,554 | 46,782 | 52,969 | |||||||||
Selling, general and administrative expenses | 51,823 | 47,183 | 48,333 | |||||||||
Restructuring charges | 688 | 682 | 549 | |||||||||
Depreciation and amortization | 2,549 | 2,618 | 2,791 | |||||||||
Impairment of long-lived assets | 2,156 | - | - | |||||||||
Gain on sale of assets | - | - | (3,229 | ) | ||||||||
|
|
|
|
|
|
|
|
| ||||
Total operating expenses | 57,216 | 50,483 | 48,444 | |||||||||
|
|
|
|
|
|
|
|
| ||||
Operating (loss) income | (13,662 | ) | (3,701 | ) | 4,525 | |||||||
Interest and other financial costs | 3,116 | 3,355 | 4,300 | |||||||||
|
|
|
|
|
|
|
|
| ||||
(Loss) income from continuing operations | (16,778 | ) | (7,056 | ) | 225 | |||||||
Income taxes (benefits) | - | - | - | |||||||||
|
|
|
|
|
|
|
|
| ||||
Net (Loss) income from continuing operations | (16,778 | ) | (7,056 | ) | 225 | |||||||
Discontinued operations: | ||||||||||||
(Loss) income from discontinued operations, net of tax | (1,405 | ) | 11,984 | 5,213 | ||||||||
Gain on disposal of discontinued operations, net of tax | 29,882 | - | - | |||||||||
|
|
|
|
|
|
|
|
| ||||
Net income from discontinued operations, net of tax | 28,477 | 11,984 | 5,213 | |||||||||
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
| ||||
Net income | $ | 11,699 | $ | 4,928 | $ | 5,438 | ||||||
|
|
|
|
|
|
|
|
| ||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 17,961 | 17,961 | 17,961 | |||||||||
Diluted | 18,393 | 18,418 | 17,961 | |||||||||
Net income per common share: | ||||||||||||
Basic | $ | 0.65 | $ | 0.27 | $ | 0.30 | ||||||
Diluted | 0.64 | 0.27 | 0.30 | |||||||||
Net (loss) income from continuing operations per common share: | ||||||||||||
Basic | $ | (0.93 | ) | $ | (0.39 | ) | $ | 0.01 | ||||
Diluted | (0.91 | ) | (0.38 | ) | 0.01 |
*Retrospectively revised (see note 18)
Fiscal Year Ended | ||||||||||||
March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||
(In thousands, except per share amounts) | ||||||||||||
Net sales | $ | 143,068 | $ | 169,420 | $ | 151,049 | ||||||
Cost of sales | 86,718 | 104,943 | 92,472 | |||||||||
|
|
|
|
|
| |||||||
Gross profit | 56,350 | 64,477 | 58,577 | |||||||||
Selling, general and administrative expenses | 53,713 | 65,867 | 67,106 | |||||||||
Depreciation and amortization | 5,458 | 4,845 | 3,859 | |||||||||
Impairment of long-lived assets | — | 309 | 46 | |||||||||
Restructuring charges | — | — | 1,182 | |||||||||
|
|
|
|
|
| |||||||
Total operating expenses | 59,171 | 71,021 | 72,193 | |||||||||
|
|
|
|
|
| |||||||
Operating loss | (2,821 | ) | (6,544 | ) | (13,616 | ) | ||||||
Interest and other financial costs | 3,017 | 5,683 | 4,689 | |||||||||
|
|
|
|
|
| |||||||
Loss from continuing operations | (5,838 | ) | (12,227 | ) | (18,305 | ) | ||||||
Income taxes (benefits) | — | — | — | |||||||||
|
|
|
|
|
| |||||||
Net loss from continuing operations | (5,838 | ) | (12,227 | ) | (18,305 | ) | ||||||
Discontinued operations: | ||||||||||||
Loss from discontinued operations, net of tax | — | (552 | ) | (381 | ) | |||||||
|
|
|
|
|
| |||||||
Net (loss) income from discontinued operations, net of tax | — | (552 | ) | (381 | ) | |||||||
|
|
|
|
|
| |||||||
Net (loss) income | $ | (5,838 | ) | $ | (12,779 | ) | $ | (18,686 | ) | |||
|
|
|
|
|
| |||||||
Weighted average common shares outstanding: | ||||||||||||
Basic | 18,005 | 17,968 | 17,961 | |||||||||
Diluted | 18,005 | 17,968 | 17,961 | |||||||||
Net (loss) income per common share: | ||||||||||||
Basic | $ | (0.32 | ) | $ | (0.71 | ) | $ | (1.04 | ) | |||
Diluted | (0.32 | ) | (0.71 | ) | (1.04 | ) | ||||||
Net (loss) from continuing operations per common share: | ||||||||||||
Basic | $ | (0.32 | ) | $ | (0.68 | ) | $ | (1.02 | ) | |||
Diluted | (0.32 | ) | (0.68 | ) | (1.02 | ) |
See accompanying notes to consolidated financial statements.statements
BIRKS GROUP INC.
Consolidated Statements of Other Comprehensive Income (loss)
Fiscal Year Ended | ||||||||||||
March 31, 2018 | March 25, 2017 | March 26, 2016 | ||||||||||
(In thousands, except per share amounts) | ||||||||||||
Net income | $ | 11,699 | $ | 4,928 | $ | 5,438 | ||||||
Other comprehensive income (loss): | ||||||||||||
Foreign currency translation adjustments(1) | 706 | 8 | (666) | |||||||||
|
|
|
|
|
| |||||||
Total other comprehensive income | $ | 12,405 | $ | 4,936 | $ | 4,772 | ||||||
|
|
|
|
|
|
Fiscal Year Ended | ||||||||||||
March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||
(In thousands) | ||||||||||||
Net Loss | $ | (5,838 | ) | $ | (12,779 | ) | $ | (18,686 | ) | |||
Other comprehensive (loss) income: | ||||||||||||
Foreign currency translation adjustments (1) | 130 | (15 | ) | (86 | ) | |||||||
|
|
|
|
|
| |||||||
Total other comprehensive loss | $ | (5,708 | ) | $ | (12,794 | ) | $ | (18,772 | ) | |||
|
|
|
|
|
|
(1) | Item that may be reclassified to the Statement of Operations in future periods |
See accompanying notes to consolidated financial statements.
BIRKS GROUP INC.
Consolidated Statements of Changes in Stockholders’ Equity (deficiency)
(In thousands of dollars except shares amounts)
Voting common stock outstanding | Voting common stock | Additional paid-in capital | Accumulated deficit | Accumulated (loss) | Total | |||||||||||||||||||
Balance at March 28, 2015 | 17,960,881 | $ | 69,601 | $ | 16,107 | $ | (84,287 | ) | $ | 1,402 | $ | 2,823 | ||||||||||||
Net income | – | – | – | 5,438 | – | 5,438 | ||||||||||||||||||
Cumulative translation adjustment(1) | – | – | – | – | (666 | ) | (666 | ) | ||||||||||||||||
|
|
| ||||||||||||||||||||||
Total comprehensive loss | – | – | – | – | – | 4,772 | ||||||||||||||||||
Compensation expense resulting from stock options granted to Management | – | – | 109 | – | – | 109 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at March 26, 2016 | 17,960,881 | $ | 69,601 | $ | 16,216 | $ | (78,849 | ) | $ | 736 | $ | 7,704 | ||||||||||||
Net income | – | – | – | 4,928 | – | 4,928 | ||||||||||||||||||
Cumulative translation adjustment(1) | – | – | – | – | 8 | 8 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total comprehensive income | – | – | – | – | – | 4,936 | ||||||||||||||||||
Compensation expense resulting from stock options granted to Management | – | – | 156 | – | – | 156 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at March 25, 2017 | 17,960,881 | $ | 69,601 | $ | 16,372 | $ | (73,921 | ) | $ | 744 | $ | 12,796 | ||||||||||||
Net income | – | – | – | 11,699 | – | 11,699 | ||||||||||||||||||
Cumulative translation adjustment(1) | – | – | – | – | 706 | 706 | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Total comprehensive income | – | – | – | – | – | 12,405 | ||||||||||||||||||
Re-classification to Net income from discontinued operations | - | - | (150 | ) | – | - | (150 | ) | ||||||||||||||||
Compensation expense resulting from stock options granted to Management | – | – | 136 | – | – | 136 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Balance at March 31, 2018 | 17,960,881 | $ | 69,601 | $ | 16,358 | $ | (62,222 | ) | $ | 1,450 | $ | 25,187 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voting common stock outstanding | Voting common stock | Additional paid-in capital | Accumulated deficit | Accumulated other comprehensive loss | Total | |||||||||||||||||||
Balance at March 31, 2018 | 17,960,881 | $ | 93,348 | $ | 19,042 | $ | (79,787 | ) | $ | (126 | ) | $ | 32,477 | |||||||||||
Net loss | — | — | — | (18,686 | ) | — | (18,686 | ) | ||||||||||||||||
Cumulative translation adjustment(1) | — | — | — | — | (86 | ) | (86 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (18,772 | ) | |||||||||||||||||
Compensation expense resulting from stock options and stock appreciation rights granted to Management | — | — | 78 | — | — | 78 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at March 30, 2019 | 17,960,881 | $ | 93,348 | $ | 19,120 | $ | (98,473 | ) | $ | (212 | ) | $ | 13,783 | |||||||||||
Net loss | — | — | — | (12,779 | ) | — | (12,779 | ) | ||||||||||||||||
Cumulative translation adjustment(1) | — | — | — | — | (15 | ) | (15 | ) | ||||||||||||||||
|
| |||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (12,794 | ) | |||||||||||||||||
Exercise of stock options | 10,000 | 20 | (10 | ) | — | — | 10 | |||||||||||||||||
Compensation expense resulting from stock options granted to Management | – | — | 21 | — | — | 21 | ||||||||||||||||||
Cumulative effect of adjustment from adoption Of a new accounting standard (2) | — | — | — | 2,390 | — | 2,390 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at March 28, 2020 | 17,970,881 | $ | 93,368 | $ | 19,131 | $ | (108,862 | ) | $ | (227 | ) | $ | 3,410 | |||||||||||
Net loss | — | — | — | (5,838 | ) | — | (5,838 | ) | ||||||||||||||||
Cumulative translation adjustment(1) | — | — | — | — | 130 | 130 | ||||||||||||||||||
|
| |||||||||||||||||||||||
Total comprehensive loss | — | — | — | — | — | (5,708 | ) | |||||||||||||||||
Exercise of stock options and warrants | 358,062 | 1,748 | (872 | ) | — | — | 876 | |||||||||||||||||
Balance at March 27, 2021 | 18,328,943 | 95,116 | 18,259 | (114,700 | ) | (97 | ) | (1,422 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(1) | The change in cumulative translation adjustments is not due to reclassifications out of accumulated other comprehensive |
(2) | As described in Note 2 (p). |
See accompanying notes to consolidated financial statements.
BIRKS GROUP INC.
Consolidated Statements of Cash Flows
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||
March 31, 2018 | March 25, 2017* | March 26, 2016* | March 27, 2021 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Cash flows (used in) from operating activities: | ||||||||||||||||||||||||
Net (loss) income attributable to owners of the Company | $ | (5,838 | ) | $ | (12,779 | ) | $ | (18,686 | ) | |||||||||||||||
Net (loss) income from discontinued operations | — | (552 | ) | (381 | ) | |||||||||||||||||||
|
|
| ||||||||||||||||||||||
Cash flows from (used in) operating activities: | ||||||||||||||||||||||||
Net income attributable to owners of the Company | $ | 11,699 | $ | 4,928 | $ | 5,438 | ||||||||||||||||||
Net income from discontinued operations | 28,477 | 11,984 | 5,213 | |||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Net income (loss) from continuing operations | (16,778 | ) | (7,056 | ) | 225 | |||||||||||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||||||||||||
Net (loss) income from continuing operations | (5,838 | ) | (12,227 | ) | (18,305 | ) | ||||||||||||||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||||||||||||||||||
Depreciation and amortization | 2,549 | 2,649 | 2,837 | 5,458 | 4,845 | 3,859 | ||||||||||||||||||
Impairment of long-lived assets | 2,156 | - | - | — | 309 | 46 | ||||||||||||||||||
Net change of operating lease right-of-use assets and liabilities | (816 | ) | 2,297 | — | ||||||||||||||||||||
Leasehold inducements received* | 1,125 | 583 | — | |||||||||||||||||||||
Operating lease modifications | (482 | ) | — | — | ||||||||||||||||||||
Amortization of debt costs | 232 | 300 | 349 | 282 | 288 | 332 | ||||||||||||||||||
Other operating activities, net | (69 | ) | 795 | 293 | (15 | ) | 312 | 364 | ||||||||||||||||
Gain on sale of assets | - | - | (3,229 | ) | ||||||||||||||||||||
(Increase) decrease in: | ||||||||||||||||||||||||
Accounts receivable and other receivables | (2,263 | ) | (545 | ) | 505 | |||||||||||||||||||
Accounts receivable, other receivables and long-term receivables | (1,298 | ) | (5,415 | ) | 1,407 | |||||||||||||||||||
Inventories | 101 | 809 | 2,977 | 4,110 | (10,358 | ) | (6,714 | ) | ||||||||||||||||
Prepaids and other current assets | (2,413 | ) | 3 | 483 | (37 | ) | 135 | 2,787 | ||||||||||||||||
Increase (decrease) in: | ||||||||||||||||||||||||
Accounts payable | 599 | (282 | ) | (3,866 | ) | (10,636 | ) | 18,735 | 5,562 | |||||||||||||||
Accrued liabilities and other long-term liabilities | 856 | (22 | ) | 820 | 6,424 | (2,729 | ) | 6,322 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net cash (used in) provided by operating activities from continuing operations | (15,030 | ) | (3,349 | ) | 1,394 | (1,723 | ) | (3,225 | ) | (4,340 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net cash (used in) provided by operating activities from discontinued operations | (14,246 | ) | 10,611 | 3,310 | — | (552 | ) | (381 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
(29,276 | ) | 7,262 | 4,704 | (1,723 | ) | (3,777 | ) | (4,721 | ) | |||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Cash flows (used in) from investing activities: | ||||||||||||||||||||||||
Cash flows (used in) provided by investing activities: | ||||||||||||||||||||||||
Additions to property and equipment | (5,089 | ) | (4,378 | ) | (4,780 | ) | (2,976 | ) | (5,832 | ) | (11,580 | ) | ||||||||||||
Additions to intangible assets and other assets | (1,688 | ) | - | - | ||||||||||||||||||||
Proceeds from sale of assets (net of fees of $0.2 million) | - | - | 4,072 | |||||||||||||||||||||
Other investing activities, net | - | (12 | ) | (37 | ) | |||||||||||||||||||
Additions to intangible assets and other asset | (16 | ) | (600 | ) | (2,031 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net cash used in investing activities from continuing operations | (6,777 | ) | (4,390 | ) | (745 | ) | (2,992 | ) | (6,432 | ) | (13,611 | ) | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net cash (used in) provided by investing activities from discontinued operations | 105,680 | (682 | ) | (1,696 | ) | |||||||||||||||||||
|
|
| ||||||||||||||||||||||
98,903 | (5,072 | ) | (2,441 | ) | ||||||||||||||||||||
|
|
| ||||||||||||||||||||||
Cash flows (used in) provided by financing activities: | ||||||||||||||||||||||||
Cash flows provided by (used in) financing activities: | ||||||||||||||||||||||||
Increase (decrease) in bank indebtedness | (16,192 | ) | 10,400 | 1,952 | (4,820 | ) | 10,842 | 10,096 | ||||||||||||||||
Repayment of obligations under capital leases | (2,944 | ) | (487 | ) | (677 | ) | ||||||||||||||||||
Proceeds from capital lease funding | 2,966 | 376 | 43 | |||||||||||||||||||||
Increase in long-term debt | 10,000 | — | 12,500 | |||||||||||||||||||||
Repayment of long-term debt | — | (831 | ) | (3,121 | ) | |||||||||||||||||||
Repayment of obligations under finance lease in 2021 and 2020, capital leases in 2019 | (50 | ) | (289 | ) | (269 | ) | ||||||||||||||||||
Payment of loan origination fees and costs | (618 | ) | (370 | ) | (76 | ) | (49 | ) | — | (591 | ) | |||||||||||||
Repayment of long-term debt | (5,757 | ) | (2,527 | ) | (1,706 | ) | ||||||||||||||||||
Increase in long-term debt | 2,981 | - | - | |||||||||||||||||||||
Advance from shareholder | 2,500 | - | - | |||||||||||||||||||||
Exercise of stock options and warrants | 876 | — | — | |||||||||||||||||||||
Other financing activities | (142 | ) | (50 | ) | (25 | ) | — | (127 | ) | (109 | ) | |||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net cash provided by (used in) financing activities from continuing operations | (17,206 | ) | 7,342 | (489 | ) | 5,957 | 9,595 | 18,506 | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Net cash used in financing activities from discontinued operations | (53,311 | ) | (9,929 | ) | (1,613 | ) | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
(70,517 | ) | (2,587 | ) | (2,102 | ) | |||||||||||||||||||
|
|
| ||||||||||||||||||||||
Effect of exchange rate on cash | (275 | ) | (3 | ) | (173 | ) | ||||||||||||||||||
|
|
| ||||||||||||||||||||||
Net decrease in cash and cash equivalents | (1,165 | ) | (400 | ) | (12 | ) | ||||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 1,242 | (614 | ) | 174 | ||||||||||||||||||||
Cash and cash equivalents, beginning of year | 1,944 | 2,344 | 2,356 | 565 | 1,179 | 1,005 | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Cash and cash equivalents, end of year | $ | 779 | $ | 1,944 | $ | 2,344 | $ | 1,807 | $ | 565 | $ | 1,179 | ||||||||||||
|
|
|
|
|
| |||||||||||||||||||
Supplemental disclosure of cash flow information: | ||||||||||||||||||||||||
Interest paid | $ | 3,584 | $ | 3,430 | $ | 3,647 | $ | 3,818 | $ | 3,779 | $ | 3,654 | ||||||||||||
Non-cash transactions: | ||||||||||||||||||||||||
Property and equipment additions acquired through capital leases | $ | 1,088 | $ | 375 | $ | 43 | $ | 136 | $ | — | $ | — | ||||||||||||
Property and equipment and intangible asset additions included in accounts payable and accrued liabilities | $ | 2,439 | $ | 1,023 | $ | 1,005 | ||||||||||||||||||
Property and equipment and intangible assets additions included in accounts payable and accrued liabilities | $ | 977 | $ | 570 | $ | 4,300 |
*Retrospectively revised (see note 18)
* | In fiscal 2021, the Company corrected an immaterial error in the comparative 2020 statement of cash flows by presenting the cash received for leasehold inducements as cash flows provided by operating activities, rather than the previous classification of cash flows provided by financing activities. The Company assessed the materiality of this error in accordance with the SEC’s Staff Accounting Bulletin No. 99, Materiality and, based on an analysis of quantitative and qualitative factors, determined that the correction was not material to its consolidated financial statements. |
See accompanying notes to consolidated financial statements.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018,27, 2021, March 25, 201728, 2020 and March 26, 201630, 2019
Birks Group Inc. (“Birks Group” or “Birks” or “the Company”) is incorporated under the Canada Business Corporations Act. The principal business activities of the Company and its subsidiaries are the design development and retail sale of luxuryprestige jewelry, timepieces and giftware. The Company’s consolidated financial statements are prepared using a fiscal year which consists of 52 or 53 weeks and ends on the last Saturday in March of each year. The fiscal year ended March 31, 2018 includes 53 weeks. The fiscal years ended March 25, 2017,27, 2021, March 28, 2020 and March 26, 2016 include 52 weeks.30, 2019 each consist of fifty-two week periods.
1. | Basis of presentation: |
These consolidated financial statements, which include the accounts of the Canadian parent company Birks Group Inc. for all periods presented for the fiscal years ended March 27, 2021, March 28, 2020, and its former wholly owned subsidiary Mayor’s Jewelers, Inc. (“Mayors”),March 30, 2019, are reported in U.S. dollars and in accordance with accounting principles generally accepted in the U.S. These principles require management to make certain estimates and assumptions that affect amounts reported and disclosed in the financial statements and related notes. During the year, the Company made a non-material correction to comparative information to classify certain assets from property and equipment to intangibles that had a net book value of $2.3 million.
The most significant estimates and judgments include assessingthe assessment of the going concern assumption, the valuation of inventories, accounts receivable, right-of-use assets and operating lease liabilities, deferred tax assets, and the recoverability of long-lived assets and the substantial doubt assessmentright of the going concern assumption.use assets. Actual results could differ from these estimates. Periodically, the Company reviews all significant estimates and assumptions affecting the financial statements relative to current conditions and records the effect of any necessary adjustments. All significant intercompany accounts and transactions have been eliminated upon consolidation.
On August 11, 2017, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Aurum Holdings Ltd., a company incorporated under the laws of England and Wales, which assigned its rights and obligations under the Purchase Agreement to Aurum Group USA, Inc., a Delaware corporation (“Aurum”) to sell its wholly-owned subsidiary, Mayors. Pursuant to the terms and conditions of the Stock Purchase Agreement, at the closing, Aurum acquired 100% of the outstanding equity interests of Mayors. The sale transaction closed on October 23, 2017 for total cash consideration of $106.8 million, net of closing adjustments (the “Aurum Transaction”). The Aurum Transaction was entered into on a debt-free basis except for certain specified liabilities. As a result of the Aurum Transaction, the Company has presented Mayors’ results as a discontinued operation in the consolidated statements of operations and cash flows for all periods presented. Furthermore, the assets and liabilities of Mayors have been segregated and reported as disposal group in the consolidated balance sheet of the comparative period of March 25, 2017. This is further described in note 18.
References to the Company exclude the cash flows, operations, assets and liabilities of the discontinued operations.
Future operations
These financial statements have been prepared on a going concern basis in accordance with generally accepted accounting principles in the U.S. The going concern basis of presentation assumes that the Company will continue its operations for the foreseeable future and be able to realize its assets and discharge its liabilities and commitments in the normal course of business. The Company funds its operations primarily through committed financing under its senior secured credit facility and its senior secured term loan described in Note 6. The senior secured credit facility along with the senior secured term loan are used to finance working capital, finance capital expenditures, provide liquidity to fund the Company’s day-to-day operations and for other general corporate purposes.
In March 2020, the World Health Organization declared the outbreak of the novel coronavirus disease (COVID-19) a pandemic and a global emergency. In response to this pandemic, many government authorities have taken preventative and protective actions to contain the spread of the virus, including imposing restrictions on business operations and travel and advising individuals to limit or forego their time outside of their homes. As a result of the measures adopted by the Canadian Federal and provincial governments to mitigate the spread of the virus, and in order to ensure the health and safety of its employees, customers and the community, the Company temporarily closed all of its retail locations in Canada effective on March 18, 2020. This adversely impacted the Company’s operations for the remaining thirteen days of fiscal 2020 and fiscal 2021. In the first two months of fiscal 2021, the Company’s only sales were derived from its e-commerce business as well as its concierge telephone service, which, along with its distribution center, continued to operate with strict cleaning protocols and social distance measures in place, in accordance with local government guidelines. During the months of June 2020 and July 2020, the Company gradually re-opened its stores across Canada as the federal and provincial government authorities loosened the protective actions and restrictions imposed at the outset of the pandemic outbreak. At the end of July 2020, the Company had re-opened all of its retail stores, albeit at reduced operating hours. As a result of provincial restrictions to address the subsequent “waves” of the COVID-19 pandemic, the Company has since experienced intermittent government mandated closures of its retail stores as well as capacity restrictions. Six of our Ontario stores, including our Bloor street flagship store, were temporarily closed for a 15 week period between November 23, 2020 and March 9, 2021. Our remaining four Ontario stores were
temporarily closed for a 12 week period between November 23, 2020 and February 16, 2021. Our five Quebec stores were temporarily closed for a six week period between December 26, 2020 and February 8, 2021. Our Manitoba store was temporarily closed for a ten week period between November 12, 2020 and January 23, 2021. During the third and fourth quarters of fiscal 2021, 16 of our 29 retail stores, representing 55% of our network, were temporarily closed for in-person shopping (but the majority remained open for concierge service and curbside pick-up) due to government orders for average durations of six to fifteen weeks, respectively. As at June 17, 2021, nine of our ten retail stores in Ontario are closed for in-person shopping until at least July 6, 2021.
As a result of these developments, the Company took action to substantially reduce its operating costs across all areas of the business and to actively manage liquidity. These actions included: the temporary layoff of the majority of our employees without pay during the period of store closures, temporary base salary reductions at the corporate head office including of our executive officers and members of our Board of Directors; certain reductions in marketing expenses, the negotiation of extended credit terms with the majority of our vendors and rent relief with our landlords, and the postponement of capital expenditures through the first three quarters of fiscal year 2021. In addition, the Company has reduced inventory purchases where possible. The Company has also applied for and received $1.4 million of funding from a financial relief program offered by the Federal government, the Canada Emergency Wage Subsidy (“CEWS”) program, which has partially reimbursed payroll expenses for periods in which the Company met the applicable qualification criteria. The Company has determined that it has also qualified for the Canada Emergency Rent Subsidy (“CERS”) program for periods from November 2020 to March 2021 and has recognized $0.5 million of CERS.
The current economic, business and retail climates have significantly changed since March 2020 and as such, the Company cannot predict the degree to, or the time period over which its sales and operations will continue to be affected by the pandemic, changes to consumer behavior and spending as a result of the pandemic, or the materiality of the effects of the pandemic, or the restrictions and impact resulting from the pandemic, on the Company. The Company continues to and expects to continue to operate through its senior secured credit facility. However, COVID-19 has resulted, and may continue to result, in significant disruption to global financial markets, which could have a negative impact on the Company’s ability to access capital in the future. Given the uncertainty, the Company is considering pursuing other actions to enhance its liquidity position.
For fiscal 2021, the Company reported a net loss of $5.8 million. The Company reported net losses from continuing operations of $12.2 million and $18.3 million (and consolidated net losses of $12.8 million $18.7 million) for fiscal 2020 and fiscal 2019, respectively. The Company used cash in operating activities from continuing operations of $1.7 million, $3.3 million, and $4.3 million for fiscal 2021, 2020, and 2019, respectively. The Company also had a negative working capital (defined as current assets less current liabilities) as at March 27, 2021 and March 28, 2020.
On July 8, 2020, the Company secured a new six-year term loan with Investissement Québec, the sovereign fund of the province of Québec, in the amount of $10.0 million, as amended. The secured term loan was used to fund the working capital needs of the Company. The loan bears interest at a rate of 3.14% per annum and is repayable in 60 equal payments beginning in July 2021. The term loan with Investissement Québec requires the Company on an annual basis to have a working capital ratio (defined as current assets divided by current liabilities excluding the current portion of operating lease liabilities) of at least 1.01. As at March 27, 2021, the Company had a working capital ratio of 1.03. On June 2, 2021, the Company obtained a waiver from Investissement Québec with respect to the requirement to meet the working capital ratio at March 26, 2022.
The Company’s ability to meet its cash flow requirements in order to fund its operations is dependent upon its ability to achieveattain profitable operations and/or continued adherence to the terms of its committed financings, obtain favorable payment terms from suppliers, as well as to maintain specified excess availability levels under its New Credit Facility (defined in note 7)senior secured credit facility and its New Term Loan (defined in note 7) and adhering to the financial covenant described in note 7.senior secured term loan. The sole financial covenant which the Company is required to adhere to under both its senior secured credit facility and its senior secured term loan a financial covenant that requires that the New
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
Credit Facility is toCompany maintain minimum excess availability of not less than CAD$8.5$8.5 million (US$6.6 million) at all times, except that the Company shall not be in breach of this covenant if excess availability falls below CAD$8.5$8.5 million (US$6.6 million) for not more than two consecutive business days once during any fiscal month. In the event that excess
availability falls below the minimum requirement, this would be considered an event of default under the senior secured credit facility and under the senior secured term loan, that would result in the outstanding balances borrowed under the Company’s senior secured credit facility and senior secured term loan becoming due immediately, which would also result in cross defaults on the Company’s other borrowings. Similarly, both the Company’s senior secured revolving credit facility and the senior secured term loan are subject to cross default provisions with all other loans pursuant to which the Company is in default of any other loan, the Company will immediately be in default of both the senior secured revolving credit facility and the senior secured term loan. The Company met its excess availability requirement as of and throughout the year ended March 27, 2021 and as of the date the financial statements were authorized for issuance. In addition, the Company expects to have excess availability of at least CAD$8.5$8.5 million (US$6.6 million) for at least the next twelve months.months from the date of these financial statements.
The Company’s ability to make scheduled payments of principal, or to pay interest, or to fund planned capital expenditures and store operations will also depend on its ability to maintain adequate levels of available borrowing, obtain favorable payment terms from suppliers and its future performance, which to a certain extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other events that are beyond the Company’s control.
The Company continues to be actively engaged in identifying alternative sources of financing that include raising additional funds through public or private equity, the disposal of assets, and debt financing, including funding from government sources. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that could restrict the Company’s operations. Financing may be unavailable in amounts or on terms acceptable to the Company if at all, which may have a material adverse impact on its business, including its ability to continue as a going concern.
The Company’s lenders under its New Credit Facilitysenior secured credit facility and its New Term Loansenior secured term loan may impose, at any time, discretionary reserves, which would lower the level of borrowing availability under the Company’s credit facilities (customary for asset-based loans), at their reasonable discretion, to: i)(i) ensure that the Company maintains adequate liquidity for the operation of its business, ii)(ii) cover any deterioration in the amount of value of the collateral, and iii)(iii) reflect impediments to the lenders to realize upon the collateral. There is no limit to the amount of discretionary reserves that the Company’s lenders may impose at their reasonable discretion. No discretionary reserves were imposed during fiscal 2018,2021, fiscal 2017,2020 and fiscal 20162019 by the Company’s current or former lenders.
The Company reported net losses fromCertain adverse conditions and events outlined above require consideration of management’s plans, which management believes mitigate the effect of such conditions and events. Management plans include continuing operationsto manage liquidity actively which allows for adherence to excess availability requirements, and where necessary cost reductions, which include reducing future purchases, maintaining reduced marketing and general operating expenses, the continued postponement of $16.8 million and $7.1 million for fiscal 2018, and fiscal 2017 respectively. In fiscal 2016, the Company reported net income from continuing operations of $0.2 million. The Company used cash in operating activities from continuing operations of $15.0 million and $3.3 million for fiscal 2018 and fiscal 2017 respectively. In fiscal 2016, the Company provided cash from operating activities from continuing operations of $1.4 million. Maintenance of sufficient availability of funding through an adequate amount of committed financing is necessary for the Company to fund itsday-to-day operations. The Company’s ability to make scheduled payments of principal, or to pay the interest or additional interest, if any, or to fund plannedcertain capital expenditures and store operations will depend on its ability to maintain adequate levels of available borrowing and its future performance, which to a certain extent, is subject to general economic, financial, competitive, legislative and regulatory factors, as well as other events that are beyondobtaining favorable payment terms from suppliers. Notwithstanding, the Company’s control.
The Company believes that it will be able to adequately fund its operations and meet its cash flow requirements for at least the next twelve months. Thesemonths from the date of issuance of these financial statements do not reflect adjustments that would be necessary if the going concern assumption was not appropriate.statements.
2. | Significant accounting policies: |
(a) | Revenue recognition: |
Sales are recognized at the point of sale when merchandise is picked up by the customer or delivered to a customer. Sales to our wholesale customers are recognized atwhen the timeCompany has agreed to terms with its customers, the productcontractual rights and payment terms have been identified, the contract has commercial substance, it is shipped outprobable that consideration will be collected by the Company and when control of our facilities.the goods has been transferred to the customer. Shipping and handling fees billed to customers are included in net sales.
Revenues for gift certificate sales and store credits are recognized upon redemption. Prior to recognition as a sale, gift certificates are recorded as accounts payable on the balance sheet. Based on historical redemption rates, athe Company estimates the portion of outstanding gift certificates (not subject to unclaimed property laws) that will ultimately not be redeemed and records this amount as breakage income. The Company recognizes such breakage income in proportion to redemption rates of the overall population of gift certificates and store credits, not subject to unclaimed property laws, are recorded as income.credits. Gift
certificates and store credits outstanding and subject to unclaimed property laws are maintained as accrued liabilities until remitted in accordance with local ordinances.
Sales of consignment merchandise are recognized at such time as the merchandise is sold, and are recorded on a gross basis because the Company is the primary obligor of the transaction, has general latitude on setting the price, has discretion as to the suppliers, is involved in the selection of the product and has inventory loss risk.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
Sales are reported net of returns and sales taxes. The Company generally gives its customers the right to return merchandise purchased by them within 10 to 90 days, depending on the product sold and records a provision at the time of sale for the effect of the estimated returns.returns which is determined based on historical experience.
Revenues for repair services are recognized when the service is delivered to and accepted by the customer.
Licensing fees are recognized when the product is delivered to and accepted by the customer.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
(b) | Cost of sales: |
Cost of sales includes direct inbound freight and duties, direct labor related to repair services, design and creative the jewelry studio,costs (labor and overhead) inventory shrink, inventory thefts, and boxes (jewelry, watch and giftware). Indirect freight including inter-store transfers, purchasing and receiving costs, distribution costs and warehousing costs are included in selling, general and administrative expenses. Purchase discounts are recorded as a reduction of inventory cost and are recorded to cost of sales as the items are sold. Mark down dollars received from vendors are recorded as a reduction of inventory costs to the specific items to which they apply and are recognized in cost of sales once the items are soldsold.
(c) | Cash and cash equivalents: |
The Company utilizes a cash management system under which a book cash overdraft may exist in its primary disbursement account. These overdrafts, when applicable, represent uncleared checks in excess of cash balancebalances in the bank account at the end of a reporting period and have been reclassified to accounts payable on the consolidated balance sheets.
The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Amounts receivable from credit card issuers are included in cash and cash equivalents and are typically converted to cash within 2 to 4 days of the original sales transaction. These amounts totaled $0.8 million and $1.9$1.8 million at March 31, 201827, 2021 and $0.6 million at March 25, 2017, respectively.28, 2020.
(d) | Accounts receivable: |
Accounts receivable arise primarily from customers’ use of our private label and proprietary credit cards and wholesale sales.sales and are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less expected credit losses. Several installment sales plans are offered to our private label credit card holders and proprietary credit card holders which vary as to repayment terms and finance charges. Finance charges on the Company’s consumer credit receivables, when applicable, accrue at rates ranging from 0% to 10.99%9.99% per annum for financing plans. The Company maintains allowances for doubtful accountsexpected credit losses associated with the accounts receivable recorded on the balance sheet for estimated losses resulting from the inability of its customers to make required payments. The allowance for credit losses is determined basedan estimate of expected credit losses, measured on a combinationcollective basis over the estimated life of the Company’s customer in-house receivables and wholesale receivables. In determining expected credit losses, the Company considers historical level of credit losses, current economic trends and reasonable and supportable forecasts that affect the the collectability of future cash flows. The Company also incorporates qualitative adjustments for certain factors including,such as Company specific risks, changes in current economic conditions that may not be captured in the quantitatively derived results, or other relevant factors to ensure the allowance for credit losses reflects the Company’s best estimate of current expected credit losses. Other relevant factors include, but are not limited to, the length of time that the receivables are past due, the Company’s knowledge of the customer, economic and market conditions and historicalwrite-off experiences. Management considered and applied qualitative factors such as the unfavorable macroeconomic conditions caused by the uncertainty surrounding COVID-19 and its potential effects.
The Company classifies a receivable account as past due if a required payment amount has not been received within the allotted time frame (generally 30 days), after which internal collection efforts commence. Once all internal collection efforts have been exhausted and management has reviewed the account, the account is put on nonaccrual status and may be sent for external collection or legal action. Upon the suspension of the accrual of interest, interest income is recognized to the extent cash payments received exceed the balance of the principal amount owed on the account. After all collection efforts have been exhausted, including internal and external collection efforts, an account is written off.
The Company guarantees a portion of its private label credit card sales to its credit card vendor. The Company maintains a liability associated with these outstanding amounts. Similar to the allowance for doubtful accounts,expected credit losses, the liability related to these guaranteed sales amounts are based on a combination of factors including the length of time the receivables are past due to the Company’s credit card vendor, the Company’s knowledge of the customer, economic and market conditions and historicalwrite-off experiences of similar credits. If the financial conditions of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
The allowance for credit losses includes an estimate for uncollectible principal as well as unpaid interest. Accrued interest is included within the same line item as the respective principal amount of the customer in-house receivables in the condensed consolidated balance sheets. The accrual of interest is discontinued at the time the receivable is determined to be uncollectible and written-off. Accrued interest during the fiscal year-ended March 27, 2021 was immaterial.
(e) | Inventories: |
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
RetailFinished goods inventories and inventories of raw materials are valued at the lower of average cost or market. Inventories of work in progress and Company manufactured finished goods are valued at the lower of average cost (which includes material, labor and overhead costs) or market.net realizable value, which is the estimated selling price in the ordinary course of business. The Company records provisionsinventory reserves for lower of cost or market,net realizable value, which includes slow-moving finished goods inventory, and damaged goods, and slow-moving inventory.shrink. The cost of inbound freight and duties are included in the carrying value of the inventories.
The allowancereserve for slow-moving finished goods inventories is equal to the difference between the cost of inventories and the estimated selling prices, resulting in the expected gross margin. There is estimation uncertainty in relation to the identification of slow-moving finished goods inventories which are based on certain criteria established by the Company. The criteria includes operational decisions by management to discontinue ordering the inventories based on sales trends, market conditions, and the aging of the inventories. Estimation uncertainty also exists in determining the expected selling prices and associated gross margins through normal sales channels, which are based on assumptions about future demand and market conditions for those slow-moving inventories. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required.
The reserve for inventory shrink is estimated for the period from the last physical inventory date to the end of the reporting period on a store by store basis and at our distribution centers. The shrink rate from the most recent physical inventory, in combination with historical experience, is the basis for providing a shrink allowance. Inventory is written down for estimated slow moving inventory equal to the difference between the cost of inventory and the estimated market value based on assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.reserve.
(f) | Property and equipment: |
Property and equipment are recorded at cost less any impairment charges. Maintenance and repair costs are charged to selling, general and administrative expenses as incurred, while expenditures for major renewals and improvements are capitalized. Depreciation and amortization are computed using the straight-line method based on the estimated useful lives of the assets as follows:
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| Period | |||
Leasehold improvements | Lesser of term of the lease or the economic life | |||
Software and electronic equipment | 1 - 6 years | |||
Furniture and fixtures | 5 - 8 years | |||
Equipment | 3 - 8 years |
(g) | Intangible assets and other assets: |
Eligible costs incurred during the development stage of information systems projects are capitalized and amortized over the estimated useful life of the related project.project and presented as part of intangible assets and other assets on the Company’s balance sheet. Eligible costs include those related to the purchase, development, and installation of the related software. Trademarks
Intangible assets and other assets also consist of trademarks and tradenames, which are amortized using the straight-line method over a period of 15 to 20 years. The Company had $3.6$5.9 million and $3.1$5.8 million of intangible assets at cost as at March 31, 201827, 2021 and March 25, 2017,28, 2020, respectively. The Company had $0.6$1.0 million and $0.4$0.9 million of accumulated amortization of intangibles at March 31, 201827, 2021 and March 25, 2017,28, 2020, respectively.
(h) | Leases: |
In February 2017, the FASB issued ASU 2017-02 - Leases (Topic 842). The new guidance primarily impacts lessee accounting by requiring the recognition of a right-of-use asset and a corresponding lease liability on the balance sheet for long-term lease agreements. The Company adopted this ASU on March 31, 2019 by applying its provisions prospectively and recognizing a cumulative-effect adjustment to the opening balance of accumulated deficit as of March 31, 2019 (modified retrospective adoption approach). The Company elected the package of practical expedients permitted under the transition guidance, which provides that an entity need not reassess: (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases, and (iii) initial direct costs for any existing leases. The Company also elected to not reassess lease terms using hindsight and to combine lease and non-lease components for new leases subsequent to March 31, 2019. The Company also elected to exclude any lease agreements that are 12 months or less from the balance sheet.
The adoption of ASU 2017-02 resulted in the following impacts to the Company’s Consolidated Balance Sheet as of March 31, 2019:
The establishment of an operating lease liability of $76.8 million and a corresponding operating lease right-of-use asset;
The reclassification of existing deferred lease inducements balance of $6.8 million and deferred straight-line rent of $4.3 million from Other long-term liabilities to Operating lease right-of-use assets; and
The reclassification of deferred gains on sale-leasebacks of $2.4 million previously recorded in other long-term liabilities, to opening retained earnings.
We determine if an arrangement is a lease at inception. The amounts of the Company’s operating lease right-of-use (“ROU”) assets and current and long-term portion of operating lease liabilities are presented separately on the balance sheet. Finance leases are included in property and equipment and long-term debt on the balance sheet.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and operating lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments in order to measure its lease liabilities at commencement date. The operating lease ROU asset also includes any lease payments made and excludes lease incentives.
The Company leases office, distribution, and retail facilities. Certain retail store leases may require the payment of minimum rentals and contingent rent based on a percentage of sales exceeding a stipulated amount. The Company’s lease agreements expire at various dates through 2034, are subject, in many cases, to renewal options and provide for the payment of taxes, insurance and maintenance. Certain leases contain escalation clauses resulting from the pass through of increases in operating costs, property taxes and the effect on costs from changes in consumer price indices, which are considered as variable costs.
The Company determines its lease payments based on predetermined rent escalations, rent-free periods and other incentives. The Company recognizes lease expense on a straight-line basis over the related terms of such leases, including any rent-free period and beginning from when the Company takes possession of the leased facility. Variable operating lease expenses, including contingent rent based on a percentage of sales, CAM charges, rent related taxes, mall advertising and adjustments to consumer price indices, are recorded in the period such amounts and adjustments are determined. Lease expense is recorded within selling, general and administrative expenses in the statement of operations.
Lease arrangements occasionally include renewal options. The Company uses judgment when assessing the renewal options in the leases and assesses whether or not it is reasonably certain to exercise these renewal options if they are within the control of the Company. Any renewal options not reasonably certain to be exercised are excluded from the lease term.
The Company monitors for events or changes in circumstances that require a reassessment of one of its leases. ROU assets, as part of the group of assets, are periodically reviewed for impairment. The Company uses the long-lived assets impairment guidance in ASC Subtopic 360-10, Property, Plant and Equipment – Overall, to determine whether an ROU asset is impaired, and if so, the amount of the impairment loss to recognize.
(i) | Deferred financing costs: |
The Company amortizes deferred financing costs incurred in connection with its financing agreements using the effective interest method over the term of the related financing. Such deferred costs are presented as a reduction to bank indebtedness and long-term debt in the accompanying consolidated balance sheets.
Warranty accrual: |
The Company generally provides warranties on its Bijoux Birks branded jewelry and watches for periods extending up to five years and has a battery replacement policy for its private labelBijoux Birks branded watches. The Company accrues a liability based on its historical repair costs for such warranties.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
Income taxes: |
Deferred income taxes reflect the net tax effects of (a) temporary differences between the carrying amounts of assets and liabilities for financial statement reporting purposes and the bases for income tax purposes, and (b) operating losses and tax credit carryforwards. Deferred income tax assets are evaluated and, if realization is not considered to bemore-likely-than-not, a valuation allowance is provided (see note 10(a)9(a)).
Foreign exchange: |
Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange in effect at the balance sheet date.Non-monetary assets and liabilities denominated in foreign currencies are translated at the rates prevailing at the respective transaction dates. Revenue and expenses denominated in foreign currencies are translated at average rates prevailing during the year. Foreign exchange gains (losses) of $0.2$1.6 million, ($0.2)1.2) million, and ($0.3)0.1) million, were recorded in cost of goods sold for the years ended March 31, 2018,27, 2021, March 25, 201728, 2020, and March 26, 2016,30, 2019, respectively and $0.1$1.3 million, $0.1($0.5) million, and ($0.2)0.3) million, of gains (losses) on foreign exchange were recorded in interest and other financial costs related to U.S. dollar denominated debts for the years ended March 31, 2018,27, 2021, March 25, 201728, 2020, and March 26, 2016,30, 2019, respectively.
Birks Group’s functional currency is the Canadian dollar while the reporting currency of the Company is the U.S. dollar. The assets and liabilities denominated in Canadian dollars are translated for reporting purposes at exchange rates in effect at the balance sheet dates. Revenue and expense items are translated at average exchange rates prevailing during the periods. The resulting gains and losses are accumulated in other comprehensive income.
Impairment of long-lived assets: |
The Company periodically reviews the estimated useful lives of its depreciable assets and changes in useful lives are made on a prospective basis unless factors indicate the carrying amounts of the assets may not be recoverable and an impairment write-down is necessary. However, the Company will review its long-lived assets for impairment once events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when the estimated undiscounted future cash flows expected to result from the use of an asset and its eventual disposition is less than its carrying value. Measurement of an impairment loss for such long-lived assets would be
based on the difference between the carrying value and the fair value of the asset, with fair value being determined based upon discounted cash flows or appraised values, depending on the nature of the asset. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair value less cost to sell. During fiscal 2018, theThe Company recordednon-cash impairment charges onof long-lived assets of $2.2 million. Thesenil, $0.3 million and $0.1 million, during fiscal 2021, fiscal 2020 and fiscal 2019, respectively. During fiscal 2020, these charges arewere associated to store leases that had a possibility of early termination, and during fiscal 2019, these charges were related to the leasehold improvements at a retail location due to its projected operating performance and certain software costs associated with a decision to modify the scope of the implementation of the Company’s new ERP system No impairment charges were recorded in fiscal 2017 and fiscal 2016.performance.
Advertising and marketing costs: |
Advertising and marketing costs are generally charged to expense as incurred and are included in selling, general and administrative expenses in the consolidated statements of operations. However, certain expenses such as those related to catalogs are expensed at the time such catalogs are shipped to recipients. The Company and its vendors participate in cooperative advertising programs in which the vendors reimburse the Company for a portion of certain specific advertising costs which are netted against advertising expense in selling, general and administrative expenses, and amounted to $0.8$0.7 million, $0.9$1.1 million, and $0.9$1.0 million for each of the years ended March 31, 2018,27, 2021, March 25, 2017,28, 2020, and March 26, 2016,30, 2019, respectively. Advertising and marketing expense,
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
net of vendor cooperative advertising allowances, amounted to $6.5 million, $7.5 million, $5.6 million and $5.7$8.7 million, in the years ended March 31, 2018,27, 2021, March 25, 2017,28, 2020, and March 26, 2016,30, 2019, respectively.
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Restructuring charges consist of exit costs and other costs associated with the reorganization of the Company’s operations to achieve operational efficiencies, including the consolidation of most of the Company’s administrative workforce from its regional office in Tamarac, Florida to its Montreal corporate head office in fiscal 2017 and 2016. Restructuring charges include severance and stay bonuses for employees being terminated, and other costs related to the transition of administrative positions to Montreal including employee recruitment costs, temporary duplication of salaries related to the transition and travel and relocation costs. Costs associated with restructuring activities are recorded when the liability is incurred or when such costs are deemed probable and estimable and represent the Company’s best estimate.
(o) |
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Pre-opening expenses relatedThe Company recognizes a government grant when there is reasonable assurance that it will comply with the conditions required to qualify for the grant, and that the grant will be received. The Company recognizes government grants as a reduction to the opening of new and relocated stores are expensed inexpense that the period incurred.grant is intended to offset.
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Lessor incentive amounts on operating leases are deferred and amortized as a reduction of rent expense over the term of the lease. Rent expense is recorded on a straight-line basis, which takes into effect any rent escalations, rent holidays and fixturing periods. Deferred operating lease liabilities amounted to $4.9 million at March 31, 2018 ($3.2 million at March 25, 2017) presented as other long-term liabilities. Lease terms are from the inception of the fixturing period until the end of the initial lease term and generally exclude renewal periods. However, renewal periods would be included in instances in which the exercise of the renewal period option would be reasonably assured and failure to exercise such option would result in an economic penalty. Contingent rent payments vary by lease, are based on a percentage of revenue above a predetermined sales level and are expensed when it becomes probable the sales levels will be achieved. This level is different for each location and includes and excludes various types of sales. In December 2000, the Company entered into a capital lease agreement for its Montreal head office and store pursuant to which the Company sold and leased back the building, including the Montreal flagship store, for a term of 20 years ending December 11, 2020. The net annual rental rate was CAD$2.2 million (approximately $1.6 million U.S. dollars) for the period that ended on December 11, 2016. On November 1, 2016, the Company entered into an agreement with the new owner of the building to terminate the then existing lease agreement for the building in advance of its expiry date in December 2020 and to lease the premises for the Company’s Montreal flagship store at its current location, which is an operating lease. As a result, a capital lease asset of CAD$8.7 million (approximately $6.5 million in U.S. dollars) and a capital lease obligation of CAD$11.6 million (approximately $8.7 million in U.S. dollars) at November 1, 2016 were derecognized and anon-cash gain of CAD$2.9 million (approximately $2.2 million in U.S. dollars) (included as part of other long-term liabilities) is being deferred and amortized over the term of the new lease of the flagship store.
Earnings per common share: |
Basic earnings per share (“EPS”) is computed as net earnings divided by the weighted-average number of common shares outstanding for the period. Diluted EPS includes the dilutive effect of the assumed exercise of stock options warrants and equity settled stock appreciation rights.warrants.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
The following table sets forth the computation of basic and diluted (loss) earnings per common share for the years ended March 31, 2018,27, 2021, March 25, 2017,28, 2020, and March 26, 2016:30, 2019:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||
March 31, 2018 | March 25, 2017 | March 25, 2016 | March 27, 2021 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||
(In thousands, except per share data) | (In thousands, except per share data) | |||||||||||||||||||||||
Basic income per common share computation: | ||||||||||||||||||||||||
Basic (loss) income per common share computation: | ||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net income | $ | 11,699 | $ | 4,928 | $ | 5,438 | ||||||||||||||||||
Net (loss) income | $ | (5,838 | ) | $ | (12,779 | ) | $ | (18,686 | ) | |||||||||||||||
Denominator: | ||||||||||||||||||||||||
Weighted-average common shares outstanding | 17,961 | 17,961 | 17,961 | 18,005 | 17,968 | 17,961 | ||||||||||||||||||
Income per common share | $ | 0.65 | $ | 0.27 | $ | 0.30 | ||||||||||||||||||
(Loss) income per common share | $ | (0.32 | ) | $ | (0.71 | ) | $ | (1.04 | ) | |||||||||||||||
Diluted income per common share computation: | ||||||||||||||||||||||||
Diluted (loss) income per common share computation: | ||||||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Net income | $ | 11,699 | $ | 4,928 | $ | 5,438 | ||||||||||||||||||
Net (loss) income | $ | (5,838 | ) | $ | (12,779 | ) | $ | (18,686 | ) | |||||||||||||||
Denominator: | ||||||||||||||||||||||||
Weighted-average common shares outstanding | 17,961 | 17,961 | 17,961 | 18,005 | 17,968 | 17,961 | ||||||||||||||||||
Dilutive effect of stock options and warrants | 432 | 457 | - | — | — | — | ||||||||||||||||||
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Weighted-average common shares outstanding – diluted | 18,393 | 18,418 | 17,961 | 18,005 | 17,968 | 17,961 | ||||||||||||||||||
Diluted income per common share | $ | 0.64 | $ | 0.27 | $ | 0.30 | ||||||||||||||||||
Diluted (loss) income per common share | $ | (0.32 | ) | $ | (0.71 | ) | $ | (1.04 | ) |
The following table sets forth the computation of basic and diluted (loss) earnings from continuing operations per common share for the years ended March 31, 2018,27, 2021, March 25, 2017,28, 2020, and March 26, 2016:30, 2019:
Fiscal Year Ended | ||||||||||||
March 31, 2018 | March 25, 2017 | March 25, 2016 | ||||||||||
(In thousands, except per share data) | ||||||||||||
Basic income from continuing operations per common share computation: | ||||||||||||
Numerator: | ||||||||||||
Net (loss) income from continuing operations | $ | (16,778 | ) | $ | (7,056 | ) | $ | 225 | ||||
Denominator: | ||||||||||||
Weighted-average common shares outstanding | 17,961 | 17,961 | 17,961 | |||||||||
Income (loss) per common share | $ | (0.93 | ) | $ | (0.39 | ) | $ | 0.01 | ||||
Diluted income per common share computation: | ||||||||||||
Numerator: | ||||||||||||
Net income | $ | (16,778 | ) | $ | (7,056 | ) | $ | 225 | ||||
Denominator: | ||||||||||||
Weighted-average common shares outstanding | 17,961 | 17,961 | 17,961 |
Basic (loss) from continuing operations per common share computation: Numerator: Net loss from continuing operations Denominator: Weighted-average common shares outstanding Loss from continuing operations per common share Diluted income per common share computation: Numerator: Net loss from continuing operations Denominator: Weighted-average common shares outstanding Dilutive effect of stock options and warrants Weighted-average common shares outstanding – diluted Diluted loss from continuing operations per common shareBIRKS GROUP INC. Fiscal Year Ended March 27, 2021 March 28, 2020 March 30, 2019 (In thousands, except per share data) $ (5,838 ) $ (12,227 ) $ (18,305 ) 18,005 17,968 17,961 $ (0.32 ) $ (0.68 ) $ (1.02 ) $ (5,838 ) $ (12,227 ) $ (18,305 ) 18,005 17,968 17,961 — — — 18,005 17,968 17,961 $ (0.32 ) $ (0.68 ) $ (1.02 )
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
Dilutive effect of stock options and warrants | 432 | 457 | - | |||||||||
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Weighted-average common shares outstanding – diluted | 18,393 | 18,418 | 17,961 | |||||||||
Diluted income (loss) per common share | $ | (0.91 | ) | $ | (0.38 | ) | $ | 0.01 |
For the year ended March 31, 2018,27, 2021, the effect from the assumed exercise of 381,487nil Class A voting shares underlying outstanding stock options and 10,932 Class A voting shares underlying outstanding warrants was excluded from the computation of diluted earnings per share due to their antidilutive effect. For the year ended March 28, 2020, the effect from the assumed exercise of 704,818 Class A voting shares underlying outstanding stock options and 382,693 Class A voting shares underlying outstanding warrants was excluded from the computation of diluted earnings per share due to their antidilutive effect. For the year ended March 25, 2017,30, 2019, the effect from the assumed exercise of 417,377 Class A voting shares underlying outstanding stock options and 382,693 Class A voting shares underlying outstanding warrants was excluded from the computation of diluted earnings per share due to their antidilutive effect. For the year ended March 26, 2016, the effect from the assumed exercise of 666,789288,000 Class A voting shares underlying outstanding stock options and 382,693 Class A voting shares underlying outstanding warrants was excluded from the computation of diluted earnings per share due to their antidilutive effect.
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The Company has exposure to market risk related to gold, silver, platinum and diamond purchases and foreign exchange risk. The Company may periodically enter into gold futures contracts to economically hedge a portion of these risks. DuringRecent Accounting Pronouncements adopted during the years ended and as of March 31, 2018 and March 25, 2017, there were no such contracts outstanding.
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In May 2014, the FASB issued ASU2014-09 -Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. In 2016, the FASB issued three additional ASUs to provide clarification to Topic 606. The ASUs will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company for its fiscal year beginning after December 15, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company’s revenue is primarily generated from the sale of finished products to customers through its retail,e-commerce or wholesale channels. While management is currently finalizing its evaluation of the impact the adoption of this guidance will have on the Company’s financial position and results of operations, it does not believe that the adoption of this ASU will have a significant impact to the financing position and results of operations.
In February 2016, the FASB issued ASU No.2016-02 - “Leases (Topic 842).” The new guidance primarily impacts lessee accounting by requiring the recognition of aright-of-use asset and a corresponding lease liability on the balance sheet for long-term lease agreements. The lease liability will be equal to the present value of all reasonably certain lease payments. Theright-of-use asset will be based on the liability, subject to adjustment for initial direct costs. Lease agreements that are 12 months or less are permitted to be excluded from the balance sheet. In general, leases will be amortized on a straight-line basis with the exception of finance lease agreements. ASU2016-02 is effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, with early adoption permitted. Management is currently evaluating the impact the adoption of this guidance will have on the Company’s financial position and results of operations.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
The Company is reviewing all lease contracts and expects that the majority of operating leases will be recognized on the consolidated balance sheet.year:
In June 2016, the FASB issued ASU2016-13 -— Financial Instruments –— Credit Losses (Topic 326), which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost, the new guidance eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. ASU2016-13 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, and any otherThe new standard affects financial assets measured at amortized cost basis, including receivables that result from revenue transactions, allowing the application of the provision on a prospective basis and recognizing a cumulative-effect adjustment to the opening retained earnings. The Company adopted this ASU on March 29, 2020 using a modified retrospective basis. The adoption of this ASU did not excluded fromhave a material impact on the scope that haveCompany’s condensed consolidated financial statements.
In August 2018, the contractual rightFASB issued ASU 2018-15—Intangibles—Goodwill and Other—Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs in such cloud computing arrangements with the requirements for capitalizing implementation costs incurred to receive cash.develop or obtain internal-use software. This ASU2016-13 is effective for annual periods,fiscal years, and interim periods within those annual periods,fiscal years, beginning after December 15, 2019. Management2019 and early adoption is currently evaluatingpermitted. Entities can choose to adopt the impact thenew guidance prospectively or retrospectively. The Company elected to adopt this guidance on a prospective basis. The adoption of this guidance willASU did not have a significant impact on the Company’s condensed consolidated financial position and results of operations.statements.
Recent Accounting Pronouncements not yet adopted:
In August 2016,December 2019, the FASB issued ASU2016-152019-12 -Statement of Cash Flows: Classification of Certain Cash Receipts and Cash PaymentsIncome Taxes (Topic 230)740): Simplifying the Accounting for Income Taxes. The new guidance primarily addresses the presentation and classification of certain cash receipts and cash paymentsThis ASU is intended to reduce complexity in the accounting for income taxes while maintaining or improving the usefulness of information provided to financial statement users. The guidance amends certain existing provisions under ASC 740 to address a number of cash flows. The following eight specific cash flows issues are addressed: Debt prepayment or debt extinguishment costs; settlement ofzero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (COLIs) and separately identifiable cash flows and application of the predominance principle. ASU2016-15distinct items. This standard is effective for annual periods, andpublic companies in fiscal years beginning after December 15, 2020, including interim periods within those annual periods, beginning after December 15, 2017.fiscal years. Early adoption is permitted, including adoption in any interim period for which financial statements have not yet been issued. Depending on the amendment, adoption may be applied on the retrospective, modified retrospective or prospective basis. Management does not believe thatcontinues to evaluate the adoptionimpact of this ASU will have a significant impact toon the consolidated financial statements and related disclosures.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
3. | Accounts receivable and other receivables: |
Accounts receivable, net of allowance for doubtful accounts,credit losses, at March 31, 201827, 2021 and March 25, 201728, 2020 consist of the following:
As of | As of | |||||||||||||||
March 31, 2018 | March 25, 2017* | March 27, 2021 | March 28, 2020 | |||||||||||||
(In thousands) | (In thousands) | |||||||||||||||
Customer trade receivables | $ | 1,510 | $ | 612 | $ | 3,055 | $ | 4,119 | ||||||||
Other receivables | 3,307 | 1,942 | 4,253 | 1,900 | ||||||||||||
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$ | 4,817 | $ | 2,554 | $ | 7,307 | $ | 6,019 | |||||||||
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Continuity of the allowance for doubtful accounts for continuing operations is as follows (in thousands):
Balance March 31, 2018 Provision for credit losses Net write offs Balance March 30, 2019 Provision for credit losses Net write offs Balance March 28, 2020 Provision for credit losses Net write offs Balance March 27, 2021 Other receivables mainly relate to receivables from wholesale revenue and tenant allowances receivable from certain landlords. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Certain sales plans relating to customers’ use of Birks credit cards provide for revolving lines of credit and/orand /or installment plans under which the payment terms exceed one year. The receivables repayable within a timeframe exceeding one year included under such plans, amounted to approximately $0.4$5.7 million and $0.2$4.7 million at March 31, 201827, 2021 and March 25, 2017,28, 2020, respectively, which are not included in customer trade receivables outlined above, and are included in customer trade receivables. Otherlong-term receivables mainly relate toon the Company’s balance sheet.
The following table disaggregates the Company’s accounts receivables from wholesale revenues.
*Retrospectively revised (see note 18)and other receivables and long-term receivables as at March 27, 2021:
Current | 1 -30 days past due | 31 -60 past due | 61 -90 past due | Greater than 90 days past due | Total | |||||||||||||||||||
Customer in-house receivables | $ | 7,677 | $ | 386 | $ | 74 | $ | 286 | $ | 764 | $ | 9,187 | ||||||||||||
Other receivables | 4,798 | 88 | 30 | 53 | 73 | 5,042 | ||||||||||||||||||
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$ | 12,474 | $ | 474 | $ | 104 | $ | 339 | $ | 837 | $ | 14,229 | |||||||||||||
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4. | Inventories: |
Inventories, net of obsolescence reserve,reserves, are summarized as follows:
As of | ||||||||||||||||
March 31, 2018 | March 25, 2017* | As of | ||||||||||||||
(In thousands) | March 27, 2021 | March 28, 2020 | ||||||||||||||
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Raw materials and work in progress | $ | 2,980 | $ | 2,932 | $ | 813 | $ | 1,174 | ||||||||
Retail inventories and finished goods | 62,813 | 62,962 | ||||||||||||||
Finished goods | 96,976 | 100,725 | ||||||||||||||
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$ | 65,793 | $ | 65,894 | $ | 97,789 | $ | 101,899 | |||||||||
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Continuity of the obsolescence reserve from continuing operations for inventory isreserves are as follows (in thousands):
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Balance March 31, 2018 | $ | 1,919 | ||
Additional charges | 647 | |||
Deductions | (671 | ) | ||
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Balance March 30, 2019 | 1,895 | |||
Additional charges | 342 | |||
Deductions | (390 | ) | ||
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Balance March 28, 2020 | 1,847 | |||
Additional charges | 291 | |||
Deductions | (200 | ) | ||
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Balance March 27, 2021 | $ | 1,938 | ||
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BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
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*Retrospectively revised (see note 18)
5. | Property and equipment: |
The components of property and equipment are as follows:
As of | ||||||||
March 31, 2018 | March 25, 2017* | |||||||
(In thousands) | ||||||||
Leasehold improvements | 24,082 | 23,324 | ||||||
Equipment | 317 | 1,264 | ||||||
Molds | 34 | 33 | ||||||
Furniture and fixtures | 5,222 | 4,320 | ||||||
Software and electronic equipment | 9,936 | 10,560 | ||||||
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39,591 | 39,501 | |||||||
Accumulated depreciation and impairment charges | (24,524 | ) | (27,895 | ) | ||||
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$ | 15,067 | $ | 11,606 | |||||
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*Retrospectively revised (see note 18)
As of | ||||||||
March 27, 2021 | March 28, 2020 | |||||||
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Leasehold improvements | 35,877 | 34,626 | ||||||
Furniture, fixtures and equipment | 13,121 | 13,327 | ||||||
Software and electronic equipment | 9,839 | 9,203 | ||||||
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58,837 | 57,156 | |||||||
Accumulated depreciation and impairment charges | (34,341 | ) | (30,543 | ) | ||||
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$ | 24,496 | $ | 26,613 | |||||
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The Company wrote off $7.5$1.6 million of gross fixed assets that were fully amortized during the year ended March 31, 201827, 2021 (March 25, 201728, 2020 - $7.9$4.2 million), mostly related to leasehold improvements. Property and equipment, having a cost of $0.8 million and a net book value of $0.7$0.3 million at March 31, 2018,27, 2021, and a cost of $0.7 million and a net book value of $0.4$0.5 million at March 25, 2017,28, 2020, are under capitalfinance leasing arrangements.
6. |
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On August 4, 2015, the Company sold the assets of its corporate sales division to Rideau for $4.3 million. The disposal is consistent with the Company’s long-term strategy to concentrate on its retail operations and develop its Birks product brand through its current retail network, as well as internationally through other channels, and to concentrate the Company’s resources and efforts on its core activities. On August 4, 2015, the carrying amount of the major classes of assets that were sold was comprised primarily of inventory of $0.8 million, resulting in a gain on disposal of assets in the amount of approximately $3.2 million. Furthermore, as part of the agreement, the Company will supply Rideau, with Birks-branded time pieces and jewelry and will receive ongoing royalty payments from Rideau, related to future sales of all Birks-branded products. Rideau has agreed to purchase a minimum aggregate amount of $4.5 million for the first three years, and $2.0 million per year for each contract year thereafter for a period of 7 years.
Bank indebtedness: |
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
As of March 31, 2018,27, 2021 and March 28, 2020, bank indebtedness consisted solely of amounts owing under the Company’s New Credit Facility, (defined below), which had an outstanding balance of $28.6 million. As$53.4 million ($53.7 million net of March 25, 2017, bank indebtedness consisted solely$0.3 million of amounts owing under thedeferred financing costs) and $58.0 million ($58.4 million net of $0.4 million of deferred financing costs), respectively. The Company’s then existing senior secured revolving credit facility (the “Prior Revolving Credit Facility”), which had an outstanding balance of $44.8 million and a maximum amount of $110.0 million. The New Credit Facility is collateralized by substantially all of the Company’s assets, as was the Prior Revolving Credit Facility.assets. The Company’s excess borrowing capacity was $15.5$18.8 million as of March 31, 201827, 2021 and $14.6$12.9 million as of March 25, 2017.28, 2020. The Company met its excess availability requirements throughout fiscal 20182021, and as of the date of these financial statements.
As of March 25, 2017 and until the repayment on October 23, 2017, theThe Company’s ability to fund its operations and meet its cash flow requirements wasis dependent upon its ability to maintain positive excess availability of at least $6.0under its $85.0 million under the Prior Credit Facility. Under the terms of the Prior Credit Facility the Company was required to maintain minimum adjusted EBITDA levels (calculated on a twelve-month rolling basis) if the Company’s availability was below $6.0 million for any five consecutive business days. Failure to meet the minimum adjusted EBITDA covenant in the event that excess availability fell below $6.0 million for any five consecutive business days was considered an event of default that could have resulted in the outstanding balances borrowed under the Company’s Prior Credit Facility becoming due immediately, which would have resulted in cross defaults on the Company’s other borrowings.
On October 23, 2017, in connection with the closing of the stock purchase agreement between the Company and Aurum, the Company entered into a new senior secured credit facility with Wells Fargo Canada Corporation for a maximum amount of CAD$85.0 million (US$65.9 million) (the “New Credit Facility”).Corporation. The New Credit Facility, which matures in October 2022, replaced the Company’s Prior Revolving Credit Facility and its prior senior secured $31.0 million term loan facility which were repaid in full as a result of the Company’s divestiture of Mayors. The New Credit Facility also provides the Company with an accordion option to increase the total commitments thereunder by up to CAD$13.0 million (US$10.1 million).$13.0 million. The Company will only have the ability to exercise this accordion option if it has the required borrowing capacity at such time. The New Credit Facility bears interest at a rate of CDOR plus a spread ranging from 1.5% - 3.0% depending on the Company’s excess availability levels. Under the New Credit Facility, the Company is not required to comply with a minimum adjusted EBITDA financial covenant. The sole financial covenant which the Company is required to adhere to is to maintain minimum excess availability of not less than CAD$8.5$8.5 million (US$6.6 million) at all times, except that the Company shall not be in breach of this covenant if excess availability falls below CAD$8.5$8.5 million (US$6.6 million) for not more than two consecutive business days once during any fiscal month. The Company’s excess availability was above $8.5 million throughout the fiscal year ended March 27, 2021.
On June 29, 2018, the Company secured a CAD$12.5$12.5 million (US$9.7 million) long-term senior secured term loan (the “New Term Loan”) with Crystal Financial LLC (“Crystal”), now known as SLR Credit Solutions (“SLR”). The New Term Loan, which matures in October 2022, is subordinated in lien priority to the NewCompany’s Credit Facility and bears interest at a rate of CDOR plus 8.25%. Under the New Term Loan, the Company will beis required to adhere to similarthe same financial covenantscovenant as under the New Credit Facility (maintain minimum excess availability of not less than CAD$8.5$8.5 million (US$6.6 million) at all times, except that the Company shall not be in breach of this covenant if excess availability falls below CAD$8.5$8.5 million (US$6.6 million) for not more than two consecutive business days once during any fiscal month). In addition, the New Term Loan includes seasonal availability blocks imposed from December 20th to January 20th of each year of CAD$9.5$9.5 million (US$7.4 million) and from January 21st to February 20th of each year of CAD$4.5 million (US$3.5 million).$4.5 million. The long term senior secured term loanlong-term Term Loan is required to be repaid upon maturity.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
The Company’s borrowing capacity under both the Newits Credit Facility and Newits Term Loan is based upon the value of the Company’s inventory and accounts receivable, which is periodically assessed by its lenders and based upon these reviews the Company’s borrowing capacity could be significantly increased or decreased.
The
Both the Company’s lenders under its New Credit Facility and its New Term Loan may impose, at any time, discretionary reserves, which would lower the level of borrowing availability under the Company’s credit facilities (customary for asset-based loans), at their reasonable discretion, to: i) ensure that the Company maintains adequate liquidity for the operation of its business, ii) cover any deterioration in the amount of value of the collateral, and iii) reflect impediments to the lenders to realize upon the collateral. There is no limit to the amount of discretionary reserves that the Company’s lenders may impose at their reasonable discretion. No discretionary reserves were imposed during fiscal 2018, fiscal 2017, and fiscal 2016 by the Company’s current or former lenders.
Both the Company’s New Credit Facility and New Term Loan are subject to cross default provisions with all other loans pursuant to which if the Company is in default of any other loan, the Company will immediately be in default of both the Newits Credit Facility and the Newits Term Loan. In the event that excess availability falls below CAD$8.5$8.5 million (US$6.6 million) for more than two consecutive business days once during any fiscal month, this would be considered an event of default under the agreements,Company’s Credit Facility and its Term Loan, that provides the lenders the right to require the outstanding balances borrowed under the Company’s New Credit Facility and Newits Term Loan to become due immediately, which would result in cross defaults on the Company’s other borrowings. The NewCompany expects to have excess availability of at least $8.5 million for at least the next twelve months from the date of issuance of these financial statements.
The Company’s Credit Facility and Newits Term Loan also contain limitations on the Company’s ability to pay dividends, more specifically, among other limitations,limitations; the Company can pay dividends only at certain excess borrowing capacity thresholds. The Company is required to either i) maintain excess availability of at least 40% of the borrowing base in the month preceding payment or ii) maintain excess availably of at least 25% of the line cap and maintain a fixed charge coverage ratio of at least 1.10 to 1.00. Other than these financial covenants related to paying dividends, the terms of the New Credit FacilityCompany’s secured credit facility and New Term Loanits senior secured term loan provide that no financial covenants are required to be met other than already described.
The Company’s lenders under its Credit Facility and its Term Loan may impose, at any time, discretionary reserves, which would lower the level of borrowing availability under its credit facilities (customary for asset-based loans), at their reasonable discretion, to: i) ensure that the Company maintains adequate liquidity for the operations of its business, ii) cover any deterioration in the value of the collateral, and iii) reflect impediments to the lenders to realize upon the collateral. There is no limit to the amount of discretionary reserves that the Company’s lenders may impose at their reasonable discretion. No discretionary reserves were imposed during fiscal year 2021 by the Company’s lenders.
The information concerning the Company’s bank indebtedness related to continuing operations is as follows:
Fiscal Year Ended | ||||||||
March 31, 2018 | March 25, 2017* | |||||||
(In thousands) | ||||||||
Maximum borrowing outstanding during the year | $ | 48,653 | $ | 50,250 | ||||
Average outstanding balance during the year | $ | 35,187 | $ | 41,751 | ||||
Weighted average interest rate for the year | 3.3% | 3.2% | ||||||
Effective interest rate atyear-end | 3.4% | 3.0% |
*Retrospectively revised (see note 18)
Fiscal Year Ended | ||||||||
March 27, 2021 | March 28, 2020 | |||||||
(In thousands) | ||||||||
Maximum borrowing outstanding during the year | $ | 64,121 | $ | 64,702 | ||||
Average outstanding balance during the year | $ | 56,807 | $ | 56,001 | ||||
Weighted average interest rate for the year | 2.9 | % | 4.2 | % | ||||
Effective interest rate at year-end | 2.6 | % | 3.8 | % |
As security for the bank indebtedness, the Company has provided some of its lenders the following: (i) general assignment of all accounts receivable, other receivables and trademarks; (ii) general security agreements on all of the Company’s assets; (iii) insurance on physical assets in a minimum amount equivalent to the indebtedness, assigned to the lenders; (iv) a mortgage on moveable property (general) under the Civil Code (Québec) of CAD$200.0 million (US$155.1 million);$200.0 million; (v) lien on machinery, equipment and molds and dies; and (vi) a pledge of trademarks and stock of the Company’s subsidiaries.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
Long-term debt: |
(a) | Long-term debt consists of the following: |
As of | ||||||||
March 31, 2018 | March 25, 2017* | |||||||
(In thousands) | ||||||||
Cash advance provided by the Company’s controlling shareholder, Montrovest, bearing interest at an annual rate of 11%, net of withholding taxes (note 16(c)) | 4,000 | 1,500 | ||||||
Term loan from Investissement Quebec, bearing interest at an annual rate of Canadian prime plus 7.0%, repayable beginning in October 2014 in 60 equal monthly principal payments of $64,634 (CAD$83,333), secured by the assets of the Company. The balance at March 31, 2018 and March 25, 2017 was CAD$1.6 million and CAD$2.9 million, respectively (b). | 1,204 | 2,141 | ||||||
Term loan from Investissement Québec, bearing interest at an annual rate of Canadian prime plus 10%, repayable beginning in August 2015 in 48 equal monthly principal payment of $32,318 (CAD$41,667), secured by the assets of the Company. The balance at March 31, 2018 and March 25, 2017 was CAD$0.8 million and 1.4 million respectively (b) | 586 | 1,061 | ||||||
Obligations under capital leases, at annual interest rates between 3.6% and 25.8%, secured by leasehold improvements, furniture, and equipment, maturing at various dates to March 2023. | 578 | 469 | ||||||
Senior secured term loans that are subordinated in lien priority to the Company’s senior secured revolving credit facility. The loan bore interest at an annual rate of LIBOR plus 9.75%. The load was fully repaid in October 2017. | $ | - | $ | 500 | ||||
Term loan from Investissement Québec, which bore interest at an annual rate of Canadian prime plus 5.5%. The loan was fully repaid in June 2017. The balance at March 25, 2017 was CAD$1.0 million (b). | - | 779 | ||||||
|
|
|
| |||||
6,368 | 6,450 | |||||||
Current portion of long-term debt | 2,611 | 2,393 | ||||||
|
|
|
| |||||
$ | 3,757 | $ | 4,057 | |||||
|
|
|
| |||||
*Retrospectively revised (see note 18) |
The term loans with Investissement Québec require the Company on an annual basis to have a working capital ratio of at least 1.15. The Company was in compliance with the working capital ratio as of March 31, 2018.
As of | ||||||||
March 27, 2021 | March 28, 2020 | |||||||
(In thousands) | ||||||||
Term loan from SLR Credit Solutions, bearing interest at an annual rate of CDOR plus 8.25%, repayable at maturity in October 2022, secured by the assets of the Company (net of deferred financing costs of $167,000 and $272,000, respectively). Refer to note 6 for additional information | 12,333 | 12,228 | ||||||
$10 million term loan from Investissement Québec, bearing interest at an annual rate of 3.14%, repayable in 60 equal payments beginning in July 2021 (net of deferred financing costs of $44,000). | 9,956 | — | ||||||
USD $1.5 million cash advance owing to the Company’s controlling shareholder, Montel, bearing interest at an annual rate of 11%, net of withholding taxes (note 15(c)) | 1,887 | 2,109 | ||||||
USD $2.5 million loan owing to the Company’s controlling shareholder, Montel, bearing interest at an annual rate of 11%, net of withholding taxes (note 15(c)). Repayable in August 2021. | 1,573 | 1,757 | ||||||
Obligations under finance leases, at annual interest rates between 2.2% and 3.9%, secured by leasehold improvements, furniture, and equipment, maturing at various dates to June 2025. | 273 | 187 | ||||||
|
|
|
| |||||
26,022 | 16,281 | |||||||
Current portion of long-term debt | 2,960 | 64 | ||||||
|
|
|
| |||||
$ | 23,062 | $ | 16,217 | |||||
|
|
|
|
(b) | On July 8, 2020, the Company secured a new six-year term loan with Investissement Québec in the amount of $10.0 million, as amended. The secured term loan was used to fund the working capital needs of the Company. The loan bears interest at a rate of 3.14% per annum and is repayable in 60 equal payments beginning in July 2021. The term loan with Investissement Québec requires the Company on an annual basis to have a working capital ratio (defined as current assets divided by current liabilities excluding the current portion of operating lease liabilities) of at least 1.01. As at March 27, 2021, the Company had a working capital ratio of 1.03. On June 2, 2021, the Company obtained a waiver from Investissement Québec with respect to the requirement to meet the working capital ratio at March 26, 2022. |
(c) | Future minimum lease payments for |
Year ending March: | ||||
2019 | $ | 279 | ||
2020 | 156 | |||
2021 | 119 | |||
2022 | 101 | |||
2023 | 40 | |||
Thereafter | - | |||
|
| |||
695 |
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
| ||||
Year ending March: | ||||
2022 | $ | 75 | ||
2023 | 75 | |||
2024 | 69 | |||
2025 | 68 | |||
2026 | 54 | |||
|
| |||
341 | ||||
|
| |||
Less imputed interest | 68 | |||
|
| |||
$ | 273 | |||
|
|
(d) | Principal payments on long-term debt required in the following five years and thereafter, including obligations under |
Year ending March: | ||||||||
2019 | $ | 2,611 | ||||||
2020 | 2,026 | |||||||
2021 | 101 | |||||||
2022 | 92 | $ | 2,981 | |||||
2023 | 38 | 14,575 | ||||||
2024 | 2,069 | |||||||
2025 | 2,068 | |||||||
2026 | 2,054 | |||||||
Thereafter | 1,500 | 2,554 | ||||||
|
| |||||||
$ | 6,368 | $ | 26,301 | |||||
|
|
(e) | As of March |
Benefit plans and stock-based compensation: |
(a) | Stock option plans and arrangements: |
(i) | The Company can issue stock options, |
The Company has a Long-Term Incentive Plan under which awards may be made in order to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees and to promote the success of the Company. Any employee or consultant selected by the administrator is eligible for any type of award provided for under the Long-Term Incentive Plan, except that incentive stock options may not be granted to consultants. The Long-Term Incentive Plan provided for the grant of units and performance units or share awards. As of March 31, 2018,27, 2021, there were 118,00080,000 cash-based stock appreciation rights that were exercisable under the Long-Term Incentive Plan. The stock appreciation rights outstanding under the Long-Term Incentive Plan have a weighted average exercise price of $1.16. $1.12. The Company has not made any grants under this incentive plan in the past three years. As at March 27, 2021, the Company has recognized a liability of $0.3 million in relation to these stock appreciation rights (March 28, 2020 - nil).
As of March 31, 2018,27, 2021, there were stock options to purchase 615,000253,147 Class A voting shares outstanding under the Long-Term Incentive Plan. During fiscal 20182021, 2020, and 20172019 no stock options were issuedgranted under the Long-Term Incentive Plan. During fiscal 2016,As of March 27, 2021, 100% of the outstanding stock options to purchase 235,000 shares of the Company’s Class A voting shares were issued with a three year vesting period, with an average exercise price of $0.78, and an expiration date of 10 years after the grant date. The weighted-average grant-date fair value of the options granted during fiscal 2016 was $0.69. The fair value of the newly issued options in fiscal 2016 was calculated as of the date of their grant, using the Black-Scholes option pricing model with the following weighted-average assumptions: Dividend yield – 0%; Expected volatility – 95.3%; Risk-free interest rate – 2.3%; and expected term in years – 10 years. The outstanding options as of March 31, 2018 had no intrinsic value. Thefully vested, accordingly unrecognized compensation relatedrelating to thenon-vested portion of stockthese options granted as of March 31, 2018 was $8,000.are nil. Total compensation cost for options recognized in expenses was $39,000, $92,000nil, ($26,000), and $109,000$10,000 during fiscal 2018, 2017,2021, 2020, and 2016,2019, respectively. This plan expired in February 2016 and no further awards will be granted under this plan. However, the Long-Term Incentive Plan will remain in effect until the outstanding awards issued under the plan terminate or expire by their terms.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
On August 15, 2016, the Board of Directors adopted the Company’s Omnibus Long-Term Incentive Plan (the “Omnibus LTIP”), and same was approved by the Company’s shareholders on September 21, 2016. Further to the Omnibus LTIP, the Company’s directors, officers, senior executives and other employees of the Company or one of its subsidiaries, consultants and service providers providing ongoing services to the Company and its affiliates may fromtime-to-time be granted various types of compensation awards, as same are further described below. The Omnibus LTIP is meant to replace the Company’s former equity awards plans. A total of 1,000,000 shares of the Company’s Class A voting shares are reserved for issuance under the Omnibus LTIP. In no event shall the Company issue Class A voting shares, or awards requiring the Company to issue Class A voting shares, pursuant to the Omnibus LTIP if such issuance, when combined with the Class A voting shares issuable upon the exercise of awards granted under the Company’s former plan or any other equity awards plan of the Company, would exceed 1,796,088 Class A voting shares, unless such issuance of Class A voting shares or awards is approved by the shareholders of the Company. This limit shall not restrict however, the Company’s ability to issue awards under the Omnibus LTIP that are payable other than in shares. As of March 31, 2018,27, 2021, there were stock options to purchase 193,000142,000 Class A voting shares outstanding under the Omnibus LTIP, all of which were issuedgranted during fiscal 2017, with a three year vesting period, with an average exercise price of $1.43 and an expiration date of 10 years after the grant date. No additional stock options were granted under this plan since then. The weighted-average grant-date fair value of the options granted during fiscal 2017 was $1.34. The fair value of the newly issued options in fiscal 2017 was calculated as of the date of their grant, using the Black-Scholes option pricing model with the following weighted-average assumptions: Dividend yield – 0%; Expected volatility – 114.63%; Risk-free interest rate –2.2%; and expected term in years – 10 years. The outstanding options asAs of March 31, 2018 had no intrinsic value. The27, 2021, 100% of the outstanding stock options were fully vested, accordingly unrecognized compensation relatedrelating to thenon-vested portion of stockthese options granted as of March 31, 2018 was $74,000.are nil. Total compensation cost for options recognized in expenses was $139,000nil, $21,000, and $68,000 during fiscal 20182021, 2020, and $65,000 during fiscal 2017.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
2019, respectively.
The Company has outstanding employee stock options issued under the Birks Employee Stock Option Plan (the “Birks ESOP”). Effective November 15, 2005, no awards are permitted to be granted under the Birks ESOP. However, the Birks ESOP will remain in effect until the outstanding awards issued under the plan terminate or expire by their terms. In March 2010, the Company offered employees who held options under this plan the right to amend their current options. The amended options terms would be consistent with the original grant except that the new options would have a lower exercise price, be exercisable for a lesser number of the Company’s Class A voting shares, have a newten-year term and be subject to different terms in the event of a change in control or if the Company had a going-private transaction. The amended options have an exercise price of $1.05 per share. As of March 31, 2018,27, 2021, March 25, 2017,28, 2020, and March 26, 201630, 2019, there were 5,666, 6,162nil, 2,818, and 6,1623,060, Class A voting shares underlying options granted under the Birks ESOP, respectively. No compensation expense was required to be recorded related to the amended option transaction and no compensation expense was required to be recorded for the outstanding option under this plan for the years ended March 31, 2018,27, 2021, March 25, 2017,28, 2020, and March 26, 2016.30, 2019.
The following is a summary of the activity of Birks’ stock option plans and arrangements.
Options | Weighted average exercise price | |||||||||
Outstanding March 28, 2015 | 441,162 | $ | 1.15 | |||||||
Granted | 235,000 | 0.78 | ||||||||
Forfeited | (10,000) | 1.10 | ||||||||
|
| |||||||||
Outstanding March 26, 2016 | 666,162 | 1.02 | ||||||||
Granted | 218,000 | 1.43 | ||||||||
Forfeited | (10,000) | 0.78 | ||||||||
|
| |||||||||
Outstanding March 25, 2017 | 874,162 | 1.13 | ||||||||
Equitycash-out payment(a) | (60,000) | 1.08 | ||||||||
Forfeited | (496) | 1.05 | ||||||||
|
| |||||||||
Outstanding March 31, 2018 | 813,666 | $ | 1.13 | |||||||
|
|
Options | Weighted average exercise price | |||||||
Outstanding March 31, 2018 | 813,666 | $ | 1.13 | |||||
Equity cash-out payment(a) | (51,400 | ) | 1.00 | |||||
Forfeited | (21,206 | ) | 1.11 | |||||
|
|
|
| |||||
Outstanding March 30, 2019 | 741,060 | 1.14 | ||||||
Exercised | (10,000 | ) | 0.78 | |||||
Forfeited | (26,242 | ) | 1.43 | |||||
|
|
|
| |||||
Outstanding March 28, 2020 | 704,818 | 1.13 | ||||||
Exercised | (226,853 | ) | 1.10 | |||||
Forfeited | (82,818 | ) | 1.66 | |||||
|
|
|
| |||||
Outstanding March 27, 2021 | 395,147 | $ | 1.04 | |||||
|
|
|
|
(a) | In connection with |
A summary of the status of Birks’ stock options at March 31, 201827, 2021 is presented below:
| Options outstanding | Options exercisable | ||||||||||||||||||||
Exercise price | Number outstanding | Weighted average remaining life (years) | Weighted average exercise price | Number exercisable | Weighted average exercise price | |||||||||||||||||
$ 0.78 | 205,000 | 7.5 | $ | 0.78 | 136,663 | $ | 0.78 | |||||||||||||||
$ 0.84 | 100,000 | 5.1 | 0.84 | 100,000 | 0.84 | |||||||||||||||||
$ 0.89 | 40,000 | 4.6 | 0.89 | 40,000 | 0.89 | |||||||||||||||||
$ 1.04-1.05 | 155,666 | 3.7 | 1.04 | 155,816 | 1.04 | |||||||||||||||||
$ 1.25-1.66 | 70,000 | 4.2 | 1.48 | 70,000 | 1.48 | |||||||||||||||||
$ 1.43 | 193,000 | 8.7 | 1.43 | 64,331 | 1.43 | |||||||||||||||||
$ 1.94 | 50,000 | 6.8 | 1.94 | 50,000 | 1.94 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
813,666 | 7.2 | $ | 1.13 | 616,810 | $ | 1.10 | ||||||||||||||||
|
|
|
|
|
|
Options outstanding | Options exercisable | |||||||||||||||||||
Exercise price | Number outstanding | Weighted average remaining life (years) | Weighted average exercise price | Number exercisable | Weighted average exercise price | |||||||||||||||
$ 0.78 | 145,000 | 4.5 | $ | 0.78 | 145,000 | $ | 0.78 | |||||||||||||
$ 0.84 | 100,000 | 2.1 | 0.84 | 100,000 | 0.84 | |||||||||||||||
$ 0.89 | 5,000 | 1.6 | 0.89 | 5,000 | 0.89 | |||||||||||||||
$ 1.43 | 142,000 | 5.6 | 1.43 | 142,000 | 1.43 | |||||||||||||||
$ 1.66 | 3,147 | 2.5 | 1.66 | 3,147 | 1.66 | |||||||||||||||
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| |||||||||||
395,147 | 3.2 | $ | 1.04 | 395,147 | $ | 1.04 | ||||||||||||||
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|
(ii) | Under plans approved by the former Board of Directors of Mayors, the Company |
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
|
The following is a summary of the activity of Mayors stock option plans:
Options | Weighted average exercise price | |||||||
Outstanding March 28, 2015 | 926 | $ | 1.05 | |||||
Expired | (299) | 1.05 | ||||||
|
| |||||||
Outstanding March 26, 2016 and March 25, 2017 | 627 | 1.05 | ||||||
Settled in cash | (586) | 1.05 | ||||||
|
| |||||||
Outstanding March 31, 2018 | 41 | 1.05 | ||||||
|
|
|
Options | Weighted average exercise price | |||||||
Outstanding March 31, 2018 | 41 | 1.05 | ||||||
Settled in cash | (41 | ) | 0.78 | |||||
|
| |||||||
Outstanding March 30, 2019 | $ | 0 | $ | 0.00 | ||||
|
|
(b) | As of March |
(c) | Restricted stock units and deferred share unit plans: |
On September 17, 2020 and November 15, 2016, the Company issued 375,000 and 121,500 cash settled restricted stock units (RSU) to members of senior management under the Omnibus LTIP. At March 31, 2018, 112,000 RSU are outstanding. These units vest after three years and expire one month following the vesting date. Compensation expense is based on the fair value of the RSU and the liability is re-measured at each reporting period. During fiscal 2021, 68,000 of the September 17, 2020 issued units had vested, and all of the fiscal 2016 issued RSU’s are fully vested. At March 27, 2021, there were 375,000 outstanding RSU’s (March 28, 2020 – nil RSU outstanding).
On September 17, 2020, October 7, 2019, June 20, 2019, September 14, 2018, September 7, 2017 and November 15, 2016, the Company also issued 223,878, 157,890, 86,954, 133,588, 74,466 and 55,944 of cash settled deferred share units (DSU) to members of the board of directors. During fiscal 2020, 36,715 DSU’s were exercised following the retirement of a board member. At March 27, 2021, 689,012 DSU’s are outstanding (March 28, 2020–465,134 DSU’s outstanding). These units vestare exercisable immediately upon the date the member ceases being a director and expire on December 31 of the following year. Compensation expense is based on the fair value of the DSU and the liability isre-measured at each reporting period.
A summary of the status of Birks’ restricted stock units and deferred share units at March 27, 2021 is presented below:
DSU | ||||
Outstanding March 31, 2018 | 130,410 | |||
Grants of new units | 133,588 | |||
Forfeited | (6,993 | ) | ||
Outstanding March 30, 2019 | 257,005 | |||
Grants of new units | 244,844 | |||
Forfeited | (36,715 | ) | ||
Outstanding March 28, 2020 | 465,134 | |||
Grants of new units | 223,878 | |||
Outstanding March 27, 2021 | 689,012 |
The fair value of cash settled DSU’s is measured based on the Company’s share price at each period end. As at March 31, 2018,27, 2021, the Company has recognized a liability of $97,000 in relationfor all cash settled DSU’s was $3.1 million (March 28, 2020 - $0.1 million). The closing stock price used to these units (March 25, 2017 - $34,000).determine the liability was $3.62. Total compensation cost for optionsDSU’s recognized in expense was $3.0 million, nil and $0.1 million in fiscal 2021, 2020, and 2019.
RSU | ||||
Outstanding March 31, 2018 | 112,000 | |||
Settled in cash | (5,500 | ) | ||
Forfeited | (4,500 | ) | ||
Outstanding March 30, 2019 | 102,000 | |||
Settled in cash | (102,000 | ) | ||
Outstanding March 28, 2020 | 0 | |||
Grants of new units | 375,000 | |||
Outstanding March 27, 2021 | 375,000 |
The fair value of cash settled RSU’s is measured based on the Company’s share price at each period end. As at March 27, 2021, the liability for all vested cash settled RSU’s was $0.3 million (March 28, 2020 - $nil). The closing stock price used to determine the liability was $3.62. Total compensation cost for RSU’s recognized in expenses was $63,000 during$0.3 million, nil, and nil in fiscal 20182021, 2020, and $34,000 during fiscal 20172019. The weighted average remaining contractual life of the unvested RSU’s is 2.7 years
|
The Company has an Employee Stock Purchase Plan (“ESPP”) that permits eligible employees, which does not include executives of the Company, to purchase the Company’s Class A voting stock at 85% of the Class A voting shares fair market value through regular payroll deductions. A total of 100,000 shares of the Company’s Class A voting shares are reserved for issuance under the ESPP. As of March 31, 2018, 99,995 Class A voting shares were outstanding under the ESPP and no additional shares will be issued under this plan.
No shares were issued under the ESPP in fiscal 2018, 2017, and 2016.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
|
In April 2015, the Company’s Board of Directors approved a long-term cash incentive plan for the Chief Executive Officer (“CEO LTCIP”). The intent of the CEO LTCIP is to reward the Chief Executive Officer based on the Company’s performance over three-year cycles, the first of which begins with the fiscal 2016 through fiscal 2018 period. The approval of this three-year cycle is at the discretion of the Board of Directors on recommendation of the Compensation Committee. The CEO LTCIP for fiscal 2016 – 2018, is structured to fund a pool of dollars based on the successful achievement of earnings before tax (“EBT”) and the level of achievement of three key metrics that can modify the amount achieved based on EBT over threeone-year periods. The amount of money funded each year, if earned, is added together at the end of the three-year cycle (with each year comprising one third of the total payout opportunity). Fifty percent (50%) of the final value of the pool following completion of the three year cycle is payable at the end of the three year cycle (early fiscal year 2019). with the remaining 50% payable one year thereafter (early fiscal 2020) subject to the Chief Executive Officer remaining employed at the time of payout and the payout not causing any default under our senior secured credit facilities. As of March 31, 2018 and March 25, 2017, no amounts were earned under the CEO LTCIP for fiscal 2016 – 2018..
Income taxes: |
(a) | The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of March |
The Company evaluates its deferred tax assets to determine if any adjustments to its valuation allowances are required. As part of this analysis, the Company could not reach the required conclusion that it would be able to more likely than not realize the value of net deferred tax assets in the future. As a result, the Company has anon-cash valuation allowance of $10.0$24.6 million against the majority of the Company’s net deferred tax assets.
The significant items comprising the Company’s net deferred tax assets related to continuing operations at March 31, 201827, 2021 and March 25, 201728, 2020 are as follows:
Fiscal Year Ended | ||||||||
March 31, 2018 | March 25, 2017* | |||||||
Deferred tax assets: | (In thousands) | |||||||
Loss and tax credit carry forwards | $ | 6,997 | $ | 7,030 | ||||
Difference between book and tax basis of property and equipment | 2,515 | 1,392 | ||||||
Other reserves not currently deductible | 53 | 51 | ||||||
Expenses not currently deductible | 511 | 336 | ||||||
Other | (74) | (28) | ||||||
|
|
|
| |||||
Net deferred tax asset before valuation allowance | 10,002 | 8,781 | ||||||
Valuation allowance | (10,002) | (8,781) | ||||||
|
|
|
| |||||
Net deferred tax asset | $ | - | $ | - | ||||
|
|
|
|
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
Fiscal Year Ended | ||||||||
March 27, 2021 | March 28, 2020 | |||||||
Deferred tax assets: | (In thousands) | |||||||
Loss and tax credit carry forwards | $ | 14,801 | $ | 14,987 | ||||
Difference between book and tax basis of property and equipment | 4,757 | 3,674 | ||||||
Operating lease right-of-use asset | 3,997 | 3,820 | ||||||
Other reserves not currently deductible | 1,187 | 136 | ||||||
Other | (177 | ) | (142 | ) | ||||
|
|
|
| |||||
Net deferred tax asset before valuation allowance | 24,565 | 22,475 | ||||||
Valuation allowance | (24,565 | ) | (22,475 | ) | ||||
|
|
|
| |||||
Net deferred tax asset | $ | — | $ | — | ||||
|
|
|
|
The Company’s income tax expense (benefit) from continuing operations consists of the following components:
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||
March 31, 2018 | March 25, 2017* | March 26, 2016* | March 27, 2021 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Income tax expense (benefit): | ||||||||||||||||||||||||
Current | $ | - | $ | - | $ | - | $ | — | $ | — | $ | — | ||||||||||||
Deferred | (2,640) | (1,866) | (278) | (1,606 | ) | (3,195 | ) | (4,769 | ) | |||||||||||||||
Valuation allowance | 2,640 | 1,866 | 278 | 1,606 | 3,195 | 4,769 | ||||||||||||||||||
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| ||||||||||||||||||||||
Income tax expense | $ | - | $ | - | $ | – | $ | — | $ | — | $ | — | ||||||||||||
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|
The Company’s current tax payable was nil at March 31, 2018, March 25, 2017,27, 2021 and March 26, 2016.28, 2020.
The Company’s provision for income taxes from continuing operations varies from the amount computed by applying the statutory income tax rates for the reasons summarized below:
Fiscal Year Ended | ||||||||||||
March 31, 2018 | March 25, 2017* | March 26, 2016* | ||||||||||
Canadian statutory rate | 26.6% | 26.6% | 26.6% | |||||||||
Rate differential for U.S. operations | 0.4% | 0.7% | (21.2%) | |||||||||
Utilization of unrecognized losses and other tax attributes | (27.1%) | (26.9%) | 123.6% | |||||||||
Permanent differences and other | 0.1% | (0.4%) | (129%) | |||||||||
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| |||||||
Total | 0% | 0% | 0% | |||||||||
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|
*Retrospectively revised (see note 18)
Fiscal Year Ended | ||||||||||||
March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||
Canadian statutory rate | 26.2 | % | 26.6 | % | 26.8 | % | ||||||
Rate differential for U.S. operations | 0.0 | % | 0.0 | % | 0.1 | % | ||||||
Utilization of unrecognized losses and other tax attributes | (27.3 | %) | (26.4 | %) | (26.2 | %) | ||||||
Permanent differences and other | 1.1 | % | (0.2 | %) | (0.7 | %) | ||||||
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| |||||||
Total | 0 | % | 0 | % | 0 | % | ||||||
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(b) | At March |
Capital stock: |
Authorized capital stock of the Company consists of an unlimited number of no par value preferred shares and two classes of common stock outstanding: Class A and Class B. Class A voting shares receive one vote per
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
share. The Class B multiple voting shares have substantially the same rights as the Class A voting shares except that each share of Class B multiple voting shares receives 10 votes per share. The issued and outstanding shares are as follows:
Class A common stock | Class B common stock | Total common stock | ||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Amount | Number of Shares | Amount | |||||||||||||||||||
Balance as of March 26, 2016 | 10,242,911 | $ | 30,988 | 7,717,970 | $ | 38,613 | 17,960,881 | $ | 69,601 | |||||||||||||||
Exercise of stock options | – | – | – | – | – | – | ||||||||||||||||||
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| |||||||||||||
Balance as of March 25, 2017 | 10,242,911 | $ | 30,988 | 7,717,970 | $ | 38,613 | 17,960,881 | $ | 69,601 | |||||||||||||||
|
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| |||||||||||||
Exercise of stock options | – | – | – | – | – | – | ||||||||||||||||||
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| |||||||||||||
Balance as of March 31, 2018 | 10,242,911 | $ | 30,988 | 7,717,970 | $ | 38,613 | 17,960,881 | $ | 69,601 | |||||||||||||||
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|
Class A common stock | Class B common stock | Total common stock | ||||||||||||||||||||||
Number of Shares | Amount | Number of Shares | Amount | Number of Shares | Amount | |||||||||||||||||||
Balance as of March 30, 2019 | 10,242,911 | $ | 35,593 | 7,717,970 | $ | 57,755 | 17,960,881 | $ | 93,348 | |||||||||||||||
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| |||||||||||||
Exercise of stock options | 10,000 | 20 | — | — | 10,000 | 20 | ||||||||||||||||||
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| |||||||||||||
Balance as of March 28, 2020 | 10,252,911 | 35,613 | 7,717,970 | $ | 57,755 | 17,970,881 | $ | 93,368 | ||||||||||||||||
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| |||||||||||||
Exercise of stock options and warrants | 358,062 | 1,748 | — | — | 358,062 | 1,748 | ||||||||||||||||||
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| |||||||||||||
Balance as of March 27, 2021 | 10,610,973 | $ | 37,361 | 7,717,970 | $ | 57,755 | 18,328,943 | $ | 95,116 | |||||||||||||||
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On August 13, 2020, the Company was notified by NYSE American that it was not in compliance with the continued listing standards set forth in Section 1003(a)(ii) of the NYSE American Company Guide. That section applies if a listed company has stockholders’ equity of less than U.S. $4.0 million and has reported losses from continuing operations and/or net losses in three of its four most recent fiscal years. Furthermore, on December 9, 2020, the Company was notified by NYSE American that it was not in compliance with the continued listing standards set forth in Section 1003(a)(i) of the Company Guide. That section applies if a listed company has stockholders’ equity of less than U.S. $2.0 million and has reported losses from continuing operations and/or net losses in two of its three most recent fiscal years.
On October 22, 2020, the Company received notice that NYSE American had accepted the Company’s plan that was submitted on September 6, 2020, to regain compliance with the continued listing standards. The Company has been granted a plan period through February 6, 2022 to regain compliance.
The Company is subject to periodic review by NYSE American during the Plan Period. If the Company does not regain compliance by the end of the Plan Period, or if the Company does not make progress consistent with the plan during the Plan Period, NYSE American may initiate delisting procedures as appropriate.
Restructuring Charges: |
In July 2014,During fiscal 2021 and 2020 the Company provided to its former senior secured lenders and announced an operationaldid not incur any restructuring plan to reduce corporate overhead costs, improve profitability and drive efficiency withincharges. During fiscal 2019 the organization. TheCompany incurred $1.2 million of restructuring plan included consolidating most of its corporate administrative workforce from its regional office in Tamarac, Florida to its Montreal corporate head office as well as the outsourcing of a portion ofcharges associated with the Company’s jewelry manufacturing and other corporate office staff reductions. In March 2018,right-sizing initiative put in place subsequent to the Company beganAurum Transaction. The $1.2 million of charges incurred during the third phase of the operational restructuring plan, incurring restructuring charges of approximately $0.7 million in fiscal 2018period were primarily associated with severance costs as the Company eliminated certain head office positions to further increase efficiency and to align corporate administrative positions that became redundant as a result offunctions with strategic direction following the Aurum Transaction. As at March 31, 2018, $0.5 million remains payable. During fiscal 2017 and 2016, the Company recorded $0.7 million and $0.5 million of restructuring charges respectively. These charges were primarilyCosts associated with severancerestructuring activities are recorded when the liability is incurred or when such costs are deemed probable and temporary duplicationestimable and represent the Company’s best estimate.
12. | Leases: |
Amounts recognized in the Consolidated Statement of salaries during the transition of positions from Tamarac to Montreal.Earnings were as follows:
52 weeks ended March 27, 2021 | 52 weeks ended March 28, 2020 | |||||||
(in thousands) | ||||||||
Fixed operating lease expense | $ | 12,495 | $ | 12,704 | ||||
Variable operating lease expense (1) | 927 | 4,437 | ||||||
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|
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| |||||
Total lease expense | $ | 13,422 | $ | 17,141 | ||||
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Operating leases:
The Company leases all of its retail stores underVariable operating leases. The rental costs are based on minimum annual rentals and for some of the stores, alease expense includes percentage of sales. Such percentage of sales varies by location. In addition, most leases are subject to annual adjustments for increases in real estaterent, taxes, mall advertising and common area maintenance costs. The Company also has operating leases for certain equipment.
Future minimum lease payments for the next five years and thereafter are as follows (in thousands):
Year ending March: |
| |||
2019 | $ | 8,243 | ||
2020 | 7,398 | |||
2021 | 7,217 | |||
2022 | 7,039 | |||
2023 | 6,745 | |||
Thereafter | 29,493 | |||
|
| |||
$ | 66,135 | |||
|
|
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
charges. Rent expense from continuing operations for the Company was approximately $11.0$15.4 million for year ended March 31, 2018, $10.7 million,30, 2019.
The weighted average remaining operating lease term was 5 years and the weighted average discount rate was 10.0% for all of the year endedCompany’s operating leases as of March 25, 2017 and $10.0 million for27, 2021.
The following table provides supplemental cash flow information related to the year ended March 26, 2016.Company’s operating leases:
52 weeks ended March 27, 2021 | 52 weeks ended March 28, 2020 | |||||||
(in thousands) | ||||||||
Cash outflows from operating activities attributable to operating leases (1) | $ | 9,186 | $ | 10,245 | ||||
Right-of-use assets obtained in exchange for operating lease liabilities (2) | 2,562 | 3,509 |
Net of $4.2 million rent concessions associated to base rent for the period ended March 27, 2021. |
(2) | Right-of-use assets obtained are recognized net of leasehold inducements. For the period ending March 27, 2021, leasehold inducements totaled $2.3 million of which $1.1 million is included in Accounts Receivable. For the period ending March 28, 2020, leasehold inducements totaled $0.9 million, of which $0.3 million is included in Accounts Receivable. |
The following table reconciles the undiscounted cash flows expected to be paid in each of the next five fiscal years and thereafter to the operating lease liability recorded on the Consolidated Balance Sheet for operating leases and finance leases which is included in long-term debt on the existing as of March 27, 2021.
Minimum Lease Payments | ||||
as of March 27, 2021 | ||||
(in thousands) | ||||
Year ending March: | Operating | |||
2022 | 13,319 | |||
2023 | 13,802 | |||
2024 | 13,196 | |||
2025 | 11,895 | |||
2026 | 10,492 | |||
Thereafter | 61,338 | |||
|
| |||
Total minimum lease payments | 124,042 | |||
Less: amount of total minimum lease payments representing interest | (51,031 | ) | ||
|
| |||
Present value of future total minimum lease payments | 73,011 | |||
Less: current portion of lease liabilities | (6,298 | ) | ||
|
| |||
Long-term lease liabilities | $ | 66,713 | ||
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|
13. | Contingencies: |
(a) | The Company and its subsidiaries, in the normal course of business, become involved from time to time in |
(b) | From time to time, the Company guarantees a portion of its private label credit card sales to its credit card vendor. At March |
Segmented information: |
The Company has two reportable segments Retail and Other. As of March 31, 2018,27, 2021, Retail operated 2826 stores across Canada under the Maison Birks brand, 1 retail location in Calgary under the Brinkhaus brand and 2 retail locations in Calgary and Vancouver under the Brinkhaus brand.Graff and Patek Philippe brands. During fiscal 2021, the Company closed one store operating under the Maison Birks banner and did not open any new stores. Other consists primarily of oure-commerce business, wholesale business and until August 2015, the corporate sales division which was sold.
gold exchange program. The two reportable segments are managed and evaluated separately based on unadjusted gross profit. The accounting policies used for each of the segments are the same as those used for the consolidated financial statements. Inter-segment sales are made at amounts of consideration agreed upon between the two segments and intercompany profit is eliminated if not yet earned on a consolidated basis. The Company does not evaluate the performance of the Company’s assets on a segment basis for internal management reporting and, therefore, such information is not presented.
Certain information relating to the Company’s segments for the years ended March 31, 2018,27, 2021, March 25, 2017,28, 2020, and March 26, 2016,30, 2019, respectively, is set forth below:
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Retail | Other | Total | ||||||||||||||||||||||||||||||||||
2018 | 2017* | 2016* | 2018 | 2017* | 2016* | 2018 | 2017* | 2016* | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
Sales to external customers | $ | 110,225 | $ | 113,644 | $ | 125,122 | $ | 4,153 | $ | 2,792 | $ | 3,529 | $ | 114,378 | $ | 116,436 | $ | 128,651 | ||||||||||||||||||
Inter-segment sales | – | – | – | 10,158 | 11,909 | 12,745 | 10,158 | 11,909 | 12,745 | |||||||||||||||||||||||||||
Unadjusted Gross profit | 43,457 | 46,715 | 52,840 | 1,702 | 1,073 | 1,603 | 45,159 | 47,788 | 54,443 |
Retail | Other | Total | ||||||||||||||||||||||||||||||||||
2021 | 2020 | 2019 | 2021 | 2020 | 2019 | 2021 | 2020 | 2019 | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||
Sales to external customers | $ | 130,758 | $ | 160,981 | $ | 143,499 | $ | 12,310 | $ | 8,439 | $ | 7,550 | $ | 143,068 | $ | 169,420 | $ | 151,049 | ||||||||||||||||||
Inter-segment sales | — | — | — | 681 | 3,606 | 9,912 | 681 | 3,606 | 9,912 | |||||||||||||||||||||||||||
Unadjusted Gross profit | 51,029 | 64,210 | 58,936 | 5,989 | 4,074 | 1,119 | 57,018 | 68,284 | 60,055 |
The following sets forth reconciliations of the segments’ gross profits and certain unallocated costs to the Company’s consolidated gross profits for the years ended March 31, 2018,27, 2021, March 25, 2017,28, 2020, and March 26, 2016:
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 201630, 2019:
Fiscal Year Ended | ||||||||||||
March 27, 2021 | March 28, 2020 | March 30, 2019 | ||||||||||
(In thousands) | ||||||||||||
Unadjusted gross profit | $ | 57,018 | $ | 68,284 | $ | 60,055 | ||||||
Inventory provisions | �� | (736 | ) | (475 | ) | (686 | ) | |||||
Other unallocated costs | 38 | (3,586 | ) | (998 | ) | |||||||
Adjustment of intercompany profit | 30 | 254 | 206 | |||||||||
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Gross profit | $ | 56,350 | $ | 64,477 | $ | 58,577 | ||||||
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| Fiscal Year Ended | |||||||||||||
March 31, 2018 | March 25, 2017* | March 26, 2016* | ||||||||||||
(In thousands) | ||||||||||||||
Unadjusted gross profit | $ | 45,159 | $ | 47,788 | $ | 54,443 | ||||||||
Inventory provisions | (1,114) | (317) | (721) | |||||||||||
Other unallocated costs | (551) | (787) | (1,065) | |||||||||||
Adjustment of intercompany profit | 60 | 98 | 312 | |||||||||||
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Gross profit | $ | 43,554 | $ | 46,782 | $ | 52,969 | ||||||||
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*Retrospectively revised (see note 18)
Sales by classes of similar products and by channel were as follows:
Fiscal Year Ended | ||||||||||||
March 31, 2018 | March 25, 2017* | March 26, 2016* | ||||||||||
(In thousands) | ||||||||||||
Classes of Similar Products | ||||||||||||
Net sales: | ||||||||||||
Jewelry and other | $ | 80,453 | $ | 80,503 | $ | 90,793 | ||||||
Timepieces | 33,925 | 35,933 | 37,858 | |||||||||
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$ | 114,378 | $ | 116,436 | $ | 128,651 | |||||||
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Jewelry and other Timepieces *Retrospectively revised (see note 18) Retail Other Total 2021 2020 2019 2021 2020 2019 2021 2020 2019 (In thousands) $ 55,743 $ 81,736 $ 91,493 $ 11,553 $ 8,439 $ 7,550 $ 67,296 $ 90,175 $ 99,043 75,015 79,245 52,006 757 — — 75,772 79,245 52,006 $ 130,758 $ 160,981 $ 143,499 $ 12,310 $ 8,439 $ 7,550 $ 143,067 $ 169,420 $ 151,049
Related party transactions: |
(a) | The Company is party to certain related party transactions. Balances related to these related parties are disclosed in the consolidated financial statements except the following: |
Fiscal Year Ended | Fiscal Year Ended | |||||||||||||||||||||||
March 31, 2018 | March 25, 2017 | March 26, 2016 | March 27, 2021 | March 28, 2020 | March 30, 2019 | |||||||||||||||||||
(In thousands) | (In thousands) | |||||||||||||||||||||||
Transactions: | ||||||||||||||||||||||||
Purchases of inventory from supplier related to a shareholder (d) | $ | - | $ | - | $ | 503 | ||||||||||||||||||
Expenses incurred: | ||||||||||||||||||||||||
Management fees to related parties (b) | 135 | 154 | 155 | — | — | 61 | ||||||||||||||||||
Consultant fees to a related party (e) | 33 | 150 | 173 | |||||||||||||||||||||
Consultant fees to a related party (d) & (g) | 209 | 229 | 231 | |||||||||||||||||||||
Expense reimbursement to a related party | 245 | 178 | 201 | 30 | 68 | 167 | ||||||||||||||||||
Interest expense on cash advance received from controlling shareholder (c) | 382 | 165 | 165 | 370 | 426 | 455 | ||||||||||||||||||
Compensation paid to a related party | 295 | 67 | - | 329 | 345 | 385 | ||||||||||||||||||
Balances: | ||||||||||||||||||||||||
Accounts payable to a supplier related to | - | - | 17 | |||||||||||||||||||||
Accounts payable to related parties | 4 | 57 | 38 | 66 | 231 | 142 | ||||||||||||||||||
Interest payable on cash advance received from controlling shareholder(c) | 21 | 24 | 25 | |||||||||||||||||||||
Interest payable on cash advance received from controlling shareholder (c) | 269 | 448 | 90 |
(b) |
|
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
|
(c) |
|
|
BIRKS GROUP INC.
NotesOn July 28, 2017, the Company received a USD $2.5 million (approximately $3.3 million in Canadian dollars) loan from Montrovest (now Montel), to Consolidated Financial Statements
Years endedfinance its working capital needs. This loan bears interest at an annual rate of 11%, net of withholding taxes, representing an effective interest rate of approximately 12%, and is due and payable in two equal payments of USD$1.25 million (approximately $1.55 million in Canadian dollars) in each of July 2018 and July 2019. During fiscal year 2019, USD$1.25 million (approximately $1.55 million in Canadian dollars) was repaid. In May 2019, Montel granted the Company a one year extension of the term of the outstanding balance of $1.8 million (USD $1.25 million) which was scheduled to be fully repaid in July 2019. In December 2019, the Company obtained a one-year moratorium on principal repayments and as such the loan became due in December 2020. In June 2020, the Company obtained a new moratorium on principal repayments and as such the loan will become due the earlier of August 31, 2021 or 10 days following a recapitalization. At March 31, 2018, March 25, 201727, 2021 and March 26, 201628, 2020, loans payable to the Company’s controlling shareholder amounted to USD$1.25 million (approximately $1.6 million and $1.8 million in Canadian dollars), respectively.
|
(e) |
|
Additionally, in November 2016, the Company also entered into a consulting services agreement with Gestofi for the services of Dr. Lorenzo Rossi di Montelera, Birks Group’s former Chairman and a director and chairman of the board of Gestofi. The agreement expired in September 2017. In fiscal 2018 and 2017, the Company paid $33,333 and $16,666 in relation to this agreement.
In accordance with the Company’s Code of Conduct related to related party transactions, in April 2011, the |
Effective January 1, 2017, the Company agreed to total annual compensation of €250,000 (approximately $388,000 in Canadian dollars),with Mr. Niccolò Rossi di Montelera in connection with his appointment as Executive Chairman of the Board and Chairman of |
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
the Executive Committee. As an effort to mitigate the financial impact of COVID-19, from the onset of the COVID-19 pandemic, Mr. Niccolò Rossi di Montelera agreed to a COVID-19 fee reduction of 20% for the months of April, May and June 2020, 10% for the months of July to December, and 20% for the months of January to March 2021 In fiscal |
On March 28, 2018, the Company’s Board of Directors approved the Company’s entry into a consulting services agreement with Carlo Coda Nunziante effective April 1, 2018. Under the agreement, Carlo |
Financial instruments: |
Fair value of financial instruments: |
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. U.S. GAAP prescribes three levels of inputs that may be used to measure fair value:
Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 1 inputs are considered to carry the most weight within the fair value hierarchy due to the low levels of judgment required in determining fair values.
Level 2 – Observable market-based inputs or unobservable inputs that are corroborated by market data.
Level 3-3 – Unobservable inputs reflecting the reporting entity’s own assumptions. Level 3 inputs are considered to carry the least weight within the fair value hierarchy due to substantial levels of judgment required in determining fair values.
The Company has determined that the carrying value of its cash and cash equivalents, accounts receivable, andlong-term receivables, accounts payable and accrued liabilities approximates fair values as at the balance sheet date. As of March 31, 201827, 2021 and March 25, 2017,28, 2020, for the $28.6$53.4 million and $44.8$58.0 million, respectively, of bank indebtedness and the $1.8$12.3 million and $4.5$12.2 million, respectively of long-term debt bearing interest at variable rates, the fair value is considered to approximate the carrying value.
As of March 31, 201827, 2021 and March 25, 2017,28, 2020, the fair value of the remaining $4.6$13.7 million and $2.0 million,$4.1million, respectively of fixed-rate long-term debt is estimated to be approximately $4.5$12.9 million and $1.9$3.9 million, respectively. The fair value was determined by discounting the future cash flows of each instrument at the current market interest rates for the same or similar debt instruments with the same remaining maturities adjusted for all necessary risks, including its own credit risk. In determining an appropriate spread to reflect its credit standing, the Company considered interest rates currently offered to the Company for similar debt instruments of comparable maturities by the Company’s lenders. As a result, the Company has determined that the inputs used to value these long-term debts fall within Level 3 of the fair value hierarchy.
Discontinued operations |
The Company considers a component to be classified as discontinued operations when it meets the criteria established under GAAP related to reporting discontinued operations and disclosures of disposals of components of the Company. The disposal of such components that represents a strategic shift that should have
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
or will have a major effect on the Company’s operations and financial results qualify as discontinued operations. The results of discontinued operations are reported in discontinued operations in the consolidated statements of operations for current and prior periods commencing in the period in which the business meets the criteria of an asset held for sale and discontinued operation, and will include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell.
On August 11, 2017, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Aurum Holdings Ltd., a company incorporated under the laws of England and Wales, which assigned its rights and obligations under the Purchase Agreement to Aurum Group USA, Inc., a Delaware corporation (“Aurum”) to sell its wholly-owned subsidiary, Mayors, which operated in Florida and Georgia and was engaged primarily in luxury timepieces and jewelry retail activities. The sale was completed on October 23, 2017 for total consideration of $106.8 million (“the Aurum Transaction”). This disposal is in line with the Company’s objective to accelerate the transformation of Birks into an international omni-channel business and into a globally-renowned luxury brand. With the sale of Mayors, the Company will solely focus its retail operations in Canada through the renovation of its new flagship stores and new concepts stores, and will shift its strategic focus towards growing the Birks brand internationally through the growing of itse-commerce and wholesale businesses. Because the Company’s retail operations in the U.S market were a significant part of the Company’s operations and financial results, the Company has determined that the disposal of Mayors represents a strategic shift.2017. Accordingly, the assets and liabilities of Mayors have been segregated and classified as disposal group in the consolidated balance sheet of the comparative period of March 25, 2017. Furthermore, theany related activities remaining of Mayors have been segregated and classified as discontinued operations in the consolidated statements of operations and cash flows for all periods presented. Legal and professional feesIn fiscal 2020, the Company incurred related costs of approximately $2.9$0.6 million have been incurred as a result of the Aurum Transaction and have been included in the calculation of the gain on disposal of Mayors. Debt extinguishment charges of approximately $2.7 million have been incurred as a result of the Aurum Transaction. These transaction fees along with the interest expense generated by the Prior Revolving Credit Facility associated with Mayorsa sales tax audit, stay bonuses and termination fees for cancelling agreement contract, which have been allocated to the results of the discontinued operations. IncludedIn fiscal 2019, the Company incurred related costs of approximately $0.9 million, in addition to recognizing a net operating expense recovery of approximately $0.5 million as part of the transition services agreement with Aurum which has been allocated to the results of the discontinued operations is an obsolescence reserve on inventory of $2.1 million.operations. No costs were incurred in fiscal 2021 related to this discontinued operation.
As a condition to the closing of the Aurum Transaction, the Company and Mayors entered into (i) an inventory purchase agreement whereby the Company purchased approximately $1.8 million in inventory from Mayors; (ii) a transition services agreement whereby the Company agreed to provide certain transition services to Mayors for a period of six months following the closing date of the transaction, subject to certain renewal rights; (iii) a services agreement whereby Mayors agreed to provide certain services to the Company for a period of twelve months following the closing date of the transaction, subject to certain renewal rights and; (iv) an authorized five-year dealer agreement with Mayors whereby Mayors will promote the sale of Birks branded products and trademarks at its existing locations in the United States.
BIRKS GROUP INC.
Notes to Consolidated Financial Statements
Years ended March 31, 2018, March 25, 2017 and March 26, 2016
The following table presents the net income from discontinued operations for the year ended March 31, 2018, March 25, 201728, 2020, and March 26, 2016:30, 2019. There is no table for the year ended March 27, 2021 since there was no income or costs:
Fiscal Year Ended | ||||||||||||
March 31, 2018 | March 25, 2017 | March 26, 2016 | ||||||||||
(In thousands, except per share amounts) | ||||||||||||
Net sales | $ | 85,274 | $ | 170,485 | $ | 157,175 | ||||||
Cost of sales | 55,917 | 108,833 | 100,757 | |||||||||
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Gross profit | 29,357 | 61,652 | 56,418 | |||||||||
Selling, general and administrative expenses | 23,871 | 47,043 | 42,792 | |||||||||
Restructuring charges | - | 160 | 205 | |||||||||
Depreciation and amortization | 1,285 | 2,416 | 2,438 | |||||||||
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Total operating expenses | 25,156 | 49,619 | 45,435 | |||||||||
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Operating income | 4,201 | 12,033 | 10,983 | |||||||||
Interest and other financial costs | 2,829 | 5,326 | 5,720 | |||||||||
Debt extinguishment charges | 2,702 | - | - | |||||||||
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(Loss) income from discontinued operations | (1,330 | ) | 6,707 | 5,263 | ||||||||
Income taxes (benefits) | 75 | (5,277 | ) | 50 | ||||||||
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(Loss) income from discontinued operations, net of taxes | (1,405 | ) | 11,984 | 5,213 | ||||||||
Gain on disposal, net of taxes | 29,882 | - | - | |||||||||
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Net income from discontinued operations, | $ | 28,477 | $ | 11,984 | $ | 5,213 | ||||||
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Weighted average common shares outstanding: | ||||||||||||
Basic | 17,961 | 17,961 | 17,961 | |||||||||
Net income from discontinued operations per common share: | ||||||||||||
Basic | $ | 1.58 | $ | 0.66 | $ | 0.29 | ||||||
Diluted | 18,393 | 18,418 | 17,961 | |||||||||
Net income from discontinued operations per common share: | ||||||||||||
Diluted | $ | 1.55 | $ | 0.65 | $ | 0.29 |
The table below presents the reconciliation of the gain on the sale of Mayors:
March 28, 2020 | March 30, 2019 | |||||||
Net sales | $ | — | $ | — | ||||
Cost of sales | — | — | ||||||
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Gross profit | — | — | ||||||
Selling, general and administrative expenses | 552 | 381 | ||||||
Restructuring charges | — | — | ||||||
Depreciation and amortization | — | — | ||||||
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Total operating expenses | 552 | 381 | ||||||
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Operating (loss) income | (552 | ) | (381 | ) | ||||
Interest and other financial costs | — | — | ||||||
Debt extinguishment charges | — | — | ||||||
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(Loss) income before taxes | (552 | ) | (381 | ) | ||||
Income tax expense (benefit) | — | — | ||||||
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(Loss) income from discontinued operations, net of taxes | (552 | ) | (381 | ) | ||||
Gain on disposal, net of taxes | — | — | ||||||
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Net (loss) income from discontinued operations | $ | (552 | ) | $ | (381 | ) | ||
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Weighted average common shares outstanding: | ||||||||
Basic | 17,968 | 17,961 | ||||||
Diluted | 17,968 | 17,961 | ||||||
Net (loss) income from discontinued operations per common share: | ||||||||
Basic | $ | (0.03 | ) | $ | (0.02 | ) | ||
Diluted | $ | (0.03 | ) | $ | (0.02 | ) |
18. | ||||||
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BIRKS GROUP INC.In response to the COVID-19 pandemic, various government programs have been announced to provide financial relief for affected businesses.
NotesThe Government of Canada announced the CEWS program in April 2020. CEWS provides a wage subsidy on eligible paid compensation, subject to Consolidated Financial Statements
Yearslimits per employee, to eligible employers based on certain criteria, including demonstration of certain revenue declines as a result of COVID-19. The Company has determined that it had qualified for this subsidy for certain intermittent periods in fiscal 2021 and has, accordingly, applied for the CEWS for said periods. For the fiscal year ended March 31, 2018,27, 2021, the Company has recognized $1.4 million of CEWS which has been recorded as a reduction to the eligible employee compensation expense incurred by the Company during this period (within selling, general, and administrative expenses). As at March 25, 201727, 2021, $1.0 million of CEWS has been collected and $0.4 million is included within Account Receivable on the consolidated balance sheet.
The Government of Canada announced the CERS program in October 2020. CERS provides a rent subsidy for eligible property expenses, such as occupancy costs, based on certain criteria and is proportional to revenue declines as a result of COVID-19.
The Company has determined that it had qualified for this subsidy for certain intermittent periods in fiscal 2021. The Company expects to complete the filing requirements and application to the CERS in the first quarter of fiscal 2022. For the fiscal year ended March 26, 201627, 2021, the Company has recognized $0.5 million of CERS and has recorded it as a reduction to the eligible occupancy expense incurred by the Company during this period (within selling, general and administrative expenses). As at March 27, 2021, nil of CERS has been collected and $0.5 million is included within Account Receivable on the consolidated balance sheet.
F-38
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The assets and liabilities of the disposal group are presented as current or long-term as at March 25, 2017. The assets and liabilities of the disposal group were as follows as at March 25, 2017:
As of | ||||||||
March 25, 2017 | ||||||||
(In thousands) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Accounts receivable | 11,007 | |||||||
Inventories | 66,175 | |||||||
Prepaids and other current assets | 780 | |||||||
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Total current assets | 77,962 | |||||||
Property and equipment | 9,076 | |||||||
Intangible assets | 298 | |||||||
Other assets | 183 | |||||||
Deferred income taxes | 5,303 | |||||||
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Totalnon-current assets | 14,860 | |||||||
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Total assets | $ | 92,822 | ||||||
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Liabilities | ||||||||
Current liabilities: | ||||||||
Bank indebtedness | 25,594 | |||||||
Accounts payable | 28,182 | |||||||
Accrued liabilities | 3,435 | |||||||
Current portion of long-term debt | 417 | |||||||
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Total current liabilities | 57,628 | |||||||
Long-term debt | 26,468 | |||||||
Other long-term liabilities | 2,290 | |||||||
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Total long-term liabilities | 28,758 | |||||||
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Total liabilities | $ | 86,386 | ||||||
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19. Subsequent events
As discussed in notes 1 and 7, on June 29, 2018, the Company secured a CAD$12.5 million (US$ 9.7 million) senior secured term loan with Crystal. Refer to note 7 for further details.
F-37